The core idea
A firm supplies where price meets marginal cost. The market supply curve is the aggregated marginal costs of all firms, sorted lowest to highest. The demand curve is the distribution of buyer willingness-to-pay, also sorted. Where they cross is the equilibrium — the price at which every mutually beneficial trade happens, and no more. — after Myatt
The hero diagram
Supply meets demand.
Downward demand, upward supply, intersection at equilibrium price and quantity.
Mechanisms worth naming
The levers in the machine.
How to apply
Looking at any new market opportunity.
- Sketch the supply curve. Who can supply, at what marginal cost?
- Sketch the demand curve. Who values this, at what price?
- Find the intersection. That is the price you should expect, absent market power.
Key reading · Myatt & Galeotti
Production choices in frictionless marketplaces.
The cost taxonomy — fixed, variable, marginal, sunk — is the single framework that makes all supply decisions tractable. The common management mistake is to use fixed or sunk costs to justify staying in a market where marginal cost is above price. That is always wrong.
Supply where P = MC. Ignore sunk costs.