a firm's individual supply curve represents the minimum possible cost of producing each unit of a good or service the supply curve tells us how much firms will produce given the price that they earn because it tells us how many units they can produce for less than that price here is an example of several firms all of whom face different marginal costs these firms might have different opportunity costs which is why their marginal costs differ nevertheless this table represents the absolute lowest cost to produce each unit for each firm firm a for example could produce the first unit for as little as one dollar if they want to produce a second one the best they can do is two dollars that means if they produce two units their total variable costs would be three dollars one dollar for the first unit and two dollars for the second I've put some of these numbers in red to show that if they can only produce that quantity they'll end up being unprofitable and will shut down so firm a needs to see a price of three dollars or higher to even be willing to enter this industry and start producing so long as the price is greater than or equal to their marginal cost they will be incentivized to produce that many units let's take a look if producers were paid one dollar per unit then no firms would be willing to produce firm a and firm C have marginal costs low enough but there must be some fixed costs that mean overall they wouldn't be profitable okay what if they earn two dollars per unit well now firm B and C are jumping in two dollars is enough to make it worthwhile for firm B to produce one unit well firm C is happy to produce three units notice their marginal cost is two dollars for both the second and third units if they earn two dollars per unit they will say yes to both of them overall the market is producing four units if the price Rises to three dollars firm a jumps in and firms B and C increase production delivering 10 units total at four dollars all firms are in production and the total quantity supplied Rises to 16 units notice now that when the price Rises to five dollars each firm now says yes to one more unit four dollars these additional units were too expensive and the firms would lose money if they produce them but now that they get paid five dollars per unit they will want to produce anything that costs five dollars or less remember these costs include implicit costs so it includes what we need to get paid to make us willing to do it at all at six dollars the market quantity supplied increases to 22. and if we keep raising the price we will see larger and larger quantities produced by all firms in the market and this is just an example with four firms in the real world there are Industries with thousands of firms all competing we can take that table showing the relationship between the price and the quantity supplied and put it on a graph it has some Kinks but it looks a lot like a supply curve and that's because it is one it's the price of something Rises more firms can profitably produce it the price is their reward for production the bigger the reward the more firms will jump into The Fray and as the price of something Rises firms producing that product will be incentivized to increase production a higher price means firms can afford to pay overtime to pay a little more to get more inputs and to expand production taken together we get the law of supply the law of supply is that when the price of a good increases the quantity supplied also increases that means the supply curve is upward sloping showing the positive relationship between the price and the quantity supplied