Supply (S) and Marginal Cost (MC)

Supply is a schedule or curve showing the relationship between various prices and quantities provided by sellers.

Each seller's individual supply curve comes from the seller's benefit-cost rule: Sell another unit if the price you receive for it exceeds (or at least covers) the unit's marginal cost (MC).

Consider a resource market example: a celebrity navy Use the information in the table below to construct a supply curve in the diagram to the right:	Each tickmark: P: $30 million; Q: 2 sailors
Sailor Required salary ($ million) A 9 B 14 C 26 D 36 E 45 F 60 G 78 H 131 I 180 J 200

There are two ways to look at supply:
	(1)	Given any price (P), the horizontal distance out to the supply curve tells us the quantity supplied (Qs).
		Example: P=______ => Qs = ______       P=______ => Qs = ______
	(2)	Given any unit, the vertical distance up to the supply curve tells us the unit's supply price (Ps), which equals its marginal cost (MC).
		Example:  marginal (opportunity) cost of unit 4 = $_____

Suppose, we take the 5 lowest-cost potential sailors to help staff a voluntary navy. The value of the combined opportunity cost of all 5 = _____. (Note: this shows up in the diagram as the area under the supply curve out to Q=5.)

Key lessons:
    (1) Lurking behind every supply curve are opportunity costs.
    (2) Supply curves usually slope up.
    (3) Price steers output of an item to its lowest cost providers.

Looking ahead: The producer surplus for any unit is the excess of the revenue you receive (the market price) over your marginal cost (MC):
    If the price is $______, how much producer surplus does sailor A enjoy? _____