Final answer:
The supply curve of a perfectly competitive firm is part of the marginal cost curve above the average variable cost's minimum point. If marginal costs increase, the firm's supply curve shifts up, meaning less quantity supplied for each price.
Step-by-step explanation:
In the short run, the supply curve of a perfectly competitive firm will be that part of the marginal cost curve which is over and above the minimum point on the average variable cost curve. This occurs because a firm in a perfect competition will choose to produce and sell output at a point where the price (P) equals the marginal cost (MC), provided that the price covers the average variable cost. As such, when market price is above this minimum point, the firm will be willing to produce and supply goods since it can at least cover its variable costs and contribute to fixed costs.
If the marginal costs increase, the firm's supply curve, which coincides with the marginal cost curve, will shift upwards. This means for each potential price, the quantity of goods that the firm is willing to supply at that price will decrease. Higher marginal costs imply lower profitability at every quantity, leading to a reduced output supplied by the firm.