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Producers Equilibrium

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24 views5 pages

Producers Equilibrium

Uploaded by

hetpatel6710
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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u ce rs

Prod
ib riu m
Equ il
Producer’s Equilibrium
Profit Maximisation is known as Producer’s Equilibrium
Producers equilibrium is struck at the level of maximum
output.

Gross Profit : Refers to the difference between TR and TVC


Net Profit : Refers to difference between TR and TC.

Abnormal Profits, Normal Profits and Sub-normal Profits

Abnormal Profits (or Extra-normal Profits)

TR > TC Following cases me abnormal profits hoga


AR > AC Jab Total revenue total cost se jyada ho
TR > TC Jab Average revenue average cost se jyada ho
Q Q last wala bhi AR > AC hi hai
Normal Profits
Following cases me normal profits hoga
TR = TC
Jab Total revenue total cost ke equal ho
AR = AC
Jab Average revenue average cost ke equal ho
TR = TC
last wala bhi AR = AC hi hai
Q Q

Sub-normal Profits (or Losses)

TR < TC Following cases me sub-normal profits hoga


AR < AC Jab Total revenue total cost ke kam ho
TR < TC Jab Average revenue average cost ke kam ho
Q Q last wala bhi AR < AC hi hai

Condition of Producer’s Equilibrium


Producer’s Equilibrium is Expressed in terms of MR, MR. Condition for Producer’s
Equilibrium are :
MR = MC
MC is rising after beyond the point of equilibrium.
Niiche wale table me 2 pe MR = MC ho raha hai but next wale me MC chota hai MR se iska
matlab aur units baane me profit jyada hai, Whereas 8th wale me MR = MC hai matlab ki agar
ek aur unit banaya to profit se jyada kharcha hai . Hence Equilibrium 8 wale ek stike karega.
Uint of Product MR MC

1 12 15

2 12 12

3 12 10

4 12 9

5 12 10

6 12 9

7 12 12

8 12 15

Diagrammatic Representation
Me after Hiting
Y Producer’s Equilibrium

R MC
Revenue And Cost

Q1 Q2
P AR =MR

O L1 L2 X
Output
Important Questions

Q.1 Equilibrium is never achieved in a situation of falling MC. in a


situation of falling MC. Why? Why?
Ans. Falling MC means that the cost of producing an additional
unit of output tends to reduce. In a situation when price is constant (as
under perfect competition) this would mean a situation when the difference
between the firm's TR and TVC (Note that TVC = EMC) tends to increase.
This means a situation when firm's gross profit (TR-TVC) tends to rise. Why
should a firm not increase output when its gross profits are rising?
Certainly it will. Therefore, it is only when MC is rising that the firm will
find its equilibrium output.

Q. 2. What happens if the firm increases its output even when MR = MC?
Ans. In a situation when MR = MC, any increase in output would mean MC > MR.
This is because MR is assumed to be constant (as under perfect competition)
and (at the point of equilibrium) MC is rising. It would be a situation when
the difference between TR (= ΣΜR) and TVC (= ΣMC) tends to reduce. Or,
that the firm's gross profits start reducing.

Q.3 Do all firms always maximise profits?


Ans. Profit Maximisation is a goal. It may not be achieved by all the firms and
all the time. Some firms run into losses, and may quit the market. However,
quitting is possible only in the long run

Q.4 Why equilibrium is not achieved when MR when MR > MC?> MC?
Ans. In a situation when MR > MC, the addition to revenue is greater than the
addition to cost if a firm expands its production. Accordingly, expansion of
production (when MR > MC) would take the firm to a higher level of profit.
Implying that the firm will not strike equilibrium so long as MR > MC

NOTE : Worksheet (Important questions of all typology with


answers) is provided as a seperate PDF on website
padhleakshay.com

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