The firm's supply curve

A firm's supply is the quantity it chooses to sell at each price, given its technology and the prices of its inputs. Since the firm produces where p = MC, its supply curve is its marginal cost curve, but only the part above the point where it would shut down.

• Short-run supply curve: the rising part of SMC, from minimum AVC upward. Below minimum AVC, output is zero.
• Long-run supply curve: the rising part of LRMC, from minimum LRAC upward. Below it, output is zero.

So the shut-down point is minimum AVC in the short run, and minimum LRAC in the long run.

Normal profit is the minimum profit needed to keep the firm in business: the opportunity cost of the entrepreneur's effort. Economists count it as part of the firm's cost. Profit above normal profit is super-normal profit.

The break-even point is at minimum average cost: there, the firm earns only normal profit.

Keep the two points apart:

• Break-even point: price = minimum AC, so TR = TC: no profit, no loss (beyond normal profit).
• Shut-down point: price = minimum AVC. The firm covers only its variable costs and loses its whole fixed cost, which it would lose anyway if it closed. Any lower price, and it is better off shutting down.

Between the two, in the short run, the firm makes a loss but keeps producing, because the price still covers its variable cost and something towards its fixed cost.