The supply curve is derived from the marginal cost of producing a good, which is the additional cost of producing an additional unit. A firm has a short-run supply curve that is upward sloping because there is a fixed amount of capital in the short run, which would need to be spread across more and more employees as quantity increased. Because of this, each additional employee would be less productive, so it would be more expensive to produce each unit of the good since the labor costs per unit would increase.

For example, consider a pizza kitchen with only one oven. The first few pizzas would have relatively low marginal costs since they would only require a few people to make them and the oven would always have the ability to have a new pizza put in to be cooked. As most pizza got produced, there would be more need for workers. However, because there is only one oven and a limited amount of space in the kitchen, each additional pizza would take longer and longer to make because there may be a need to wait for space in the office to become available and also because people may start to bump into each other because of the limited space. All employees would still need to be paid, however, so the marginal costs of the additional pizzas would rise since the additional employees would need longer periods of time to produce the pizzas.