Now that we know that in the short run the firm should shut down if price is below average variable cost, and should operate in the short run if price is greater than average variable cost, we can refine our definition of the short run supply curve for a perfectly competitive firm.

   The short run supply curve for a perfectly competitive firm is the marginal cost curve above average variable cost as shown to the right. This is because when price falls below average variable cost the firm will shut down in the short run.

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