Summary about Cost

By thinking in terms of cost, rather than productivity, we gain several points of understanding of supply:

While total and average cost concepts have their uses, the most important in the short run is marginal cost.
To maximize profits, the firm will increase output to the point where marginal cost equals a given price.
Therefore, the marginal cost curve is itself the supply curve, in the short run.
The firm will shut down, however, if it cannot cover its variable cost.
We may think of the long run as a perspective of investment planning.
Long run average cost is the "lower envelope" of all the short run average cost curves for different plant or firm sizes.
We may observe increasing costs, decreasing costs, or constant costs as output increases, in the long run -- or all three, depending on output.