Firm A Firm B (marginal firm) Profit = $20 Price = $10 Price = $10 MC AC input bid up (profit imputed to it) 8 MC AC 6 breaks even Output (units) Output (units) Cost / price (dollars) Firm A: makes 8 at $10, average cost $7.50 - profit $20. Firm B: makes 6, average cost $10 - breaks even. A profits only because its superior input is still cheap; B, the marginal firm, just covers its costs.

Drag Firm A's gold average-cost curve upward (or focus it and use the arrow keys) to bid its superior input up and watch the profit vanish.