Production Cost (Part 5): MC, AVC, and Supply Curve 

The shapes of the AVC curve informs us about the shape of the marginal cost curve. If AVC is decreasing, MC must lie below AVC. Conversely, if AVC is increasing, MC must lie above AVC. And the final important takeaway is the supply curve is the portion of the MC curve that lies above minimum AVC. This is because at prices below minimum AVC total revenues from production will be less than total variable cost. Since variable cost is 0 when production is 0, it would be better for the firm to shutdown at these prices. This video is made for 1st year college students or AP/IB Economics students. It focuses on foundational economic concepts.