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).

The table below provides production information for Jessica, who picks blueberries in the summer to make some extra money.	Each tickmark: P: $1; Q: 1 basket
Basket # Marginal cost 1 $2.50 2 $3.00 3 $3.50 4 $4.25 5 $5.00

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= $3.00  => Qs = ______       P= $3.50  => 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 = $_____

Now consider the first 3 baskets of blueberries combined. The value of the combined opportunity cost of all 3 = _____. (Note: this shows up in the diagram as the area under the supply curve out to Q=3.)

Key lessons:
    (1) Supply curves reflect marginal costs (MC).
    (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 Jessica receive on the first basket of blueberries she picks? _____