Question

A firm’s marginal cost curve above the average variable cost curve is equal to the firm’s individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm’s individual supply curve if marginal costs increase?

a. Shifts to the right
b. Shifts to the left
c. Remains unchanged
d. Becomes vertical

Answer 1

An increase in a firm's marginal costs causes the firm's individual supply curve to shift to the left, representing a decreased quantity supplied at each price level.

Step-by-step explanation:

When a firm's marginal costs increase, the firm's individual supply curve shifts. This is because the supply curve represents the amount of product that a firm is willing to supply at each price level. If the marginal cost increases, the firm would only supply the same quantity of goods at a higher price to maintain profitability. Therefore, an increase in marginal cost would shift the supply curve to the left.