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In turn, each firm's individual supply curve is the quantity supplied, from zero capacity to maximum capacity, at a price equal to marginal cost. Marginal cost is determined by taking the derivative of the cost function with respect to quantity. The cost function C(Q) for each firm is the sum of variable costs VC(Q) and fixed costs FC. Because VC(Q) in this case is VC*Q, the derivative of the cost function is VC. Therefore, for each firm, the marginal cost MC is equal to the total variable cost TVC (See Appendix A) and is constant.
In the short run, firms will generate profits if marginal costs exceed average costs...
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