Why is the supply curve upward sloping because of marginal cost?

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The fundamental point with the supply curve is that the marginal cost must be equal to marginal revenue. At that location, there is economic equilibrium because you will not be wasting revenue nor incurring extra marginal cost. Because of this, marginal cost and marginal revenue are intrinsically linked; therefore, the slope of the supply curve will move accordingly.

As supply increases, you will produce more. Initially, below equilibrium, the marginal cost will decrease with each piece produced. However, at the point where firms produce, the marginal cost increases for every product. At this point, marginal revenue increases as well, but slower. The point where the two cross is equilibrium, and it is at this point where you will want to produce.

The curve increases because, once you have produced a certain amount, it is not as valuable to continue to produce above that—so the marginal cost increases for each piece produced. To counter this, firms will raise prices if there is sufficient demand.

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A firm will always wish to produce at the quantity where marginal costs equal marginal revenues.  Therefore, the supply curve must slope upwards.

Economists have determined that the quantity where MR equals MC is the optimal quantity at which to produce.  At this quantity, a firm maximizes its profits or minimizes its losses.

So, if the price of selling a good or service goes up, firms will be willing to produce more of those goods.  As the price goes up, marginal revenue goes up.  As marginal revenue goes up, firms should produce more so that MC will equal MR.

The other way of looking at this is that marginal costs tend to go up as the quantity produced goes up.  When this happens, firms must raise their prices so that MR will equal MC.

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