The diagram below shows the derivation of a competitive market supply curve (SSS) from the marginal cost curve (MCMCMC) of an individual price-taking firm.
Ceteris paribus, which of the following provides the most accurate microeconomic explanation for why the short-run market supply curve slopes upwards from left to right?
An increase in output causes average fixed costs (AFCAFCAFC) to rise, meaning firms must receive higher prices to remain profitable in the short run.
Higher market prices cause the individual firm's marginal cost (MCMCMC) curve to shift downwards, making it cheaper to produce higher volumes.
As production expands in the short run, the law of diminishing returns causes marginal costs to rise, meaning a higher price is required to incentivize firms to increase output.
An expansion in quantity demanded at higher prices automatically lowers the barriers to entry, encouraging new firms to supply more at lower marginal costs.
