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Equilibrium of firm under Perfect competition using MR and MC approach?
Equilibrium of Firm: MR - MC ApproachProfit maximization is one of the important assumptions of economics. It is assumed that the entrepreneur always tries to maximize profit. Hence the firm or entrepreneur is said to be in equilibrium if the profit is maximized. According to Tibor Sitovosky "A market or an economy or any other group of persons and firms is in equilibrium when none of its member's fells impelled to change his behavior". Naturally, the firm will not try to change its position when it is in equilibrium by maximizing profit.There are two approaches to explain the equilibrium of the firm regards to profit maximization. They are - total revenue-total cost approach and marginal revenue-marginal cost approach. Here we concentrate only on MR - MC approach.The equilibrium of firm on the basis of MR - MC approach has been presented in the table belowAccording to MT -MC approach, when marginal revenue equals marginal cost the firm is in equilibrium and gets maximum profit. Hence, a rational producer determines the quality of output where marginal revenue equals marginal cost.The difference between total revenue and total cost is highest 210, at four units of output. At this output, both marginal revenue and marginal cost are equal, 80. Hence profit is maximized. The firm is in equilibrium. It should be noted that the table relates to imperfect competition, when price is reduced to sell more.The following two conditions are necessary for a firm to be in equilibrium.(a) The marginal revenue should be equal to marginal cost.(b) The marginal cost curve should cut marginal revenue curve from below.The equilibrium of a under to MR - MC approach has been presented in figure:-The figure depicts the equilibrium of a firm under perfect competition. The same is applicable to the firms under imperfect competition. The only difference is that the AR & MR curves under imperfect competition are different and they are downward sloping.In the figure 'OP' is the given price. Since, under perfect competition, average revenue equals marginal revenue, the AR and MR curves are horizontal from P. The profit-maximizing output is OM. Here, marginal revenue and marginal cost are equal. It is because MC and MR curves intersect each other at point E. The firm earns profit equal to PEBC.The first condition necessary for firm's equilibrium is that marginal cost should be equal to marginal revenue. But this is not a sufficient condition. It is because the firm may not be in equilibrium even if this condition is fulfilled. In the figure, this condition is fulfilled at point F. but the firm is not in equilibrium. The profit is maximized only at output OM which is higher than output ON.The second condition necessary for equilibrium is that the marginal cost curve must cut marginal revenue curve from below. This implies that marginal cost should be rising at the point of intersection with MR curve. Hence, both the conditions have been fulfilled at point E. In the figure, MC curve cuts MR curve from at point F from above. Hence, this point cannot be the point of stable equilibrium. It is because before that point marginal cost exceeds marginal revenue. It shows that it is not reasonable to increase output. After point F, the MR curve lies above MC curve. This shows that it is reasonable to increase output.
Why is money demand downward sloping?
Money demand is always downward sloping because when the cost of holding money increases (e.g. interest rates rise) the quantity of money consumers hold decreases. This means at lower interest rates, people want to hold more money and fewer bonds.
How much is a token cost on myfreecams?
On MyFreeCams, tokens typically cost around $0.05 each when purchased in bulk, but the price can vary based on the quantity bought. Users often have the option to buy packages that may offer better rates. Always check the site for the most current pricing, as it can change.
Whose quote is this If you always do what you've always done you'll always get what you've always got?
Mark Twain
Can you get your money back on a valplast partial?
Whether you can get your money back on a Valplast partial denture depends on the return policy of the dental provider or laboratory that supplied it. Typically, custom dental products like Valplast partials are not eligible for refunds once they have been fitted and used, as they are considered personalized items. However, if there are manufacturing defects or issues that arise shortly after fitting, it may be possible to discuss adjustments or a replacement with your dentist. Always check the specific terms and conditions provided at the time of purchase.
What happens when there is a shortage of goods?
When there is a shortage of goods, it means that the quantity demanded for the good is higher than the quantity supplied for the good, thus, the supply and demand are not in equilibrium. Because the good is in such great demand, sellers can usually increase the price of the good without losing business. The price will rise, but as price rises, because of the increase in price, the quantity demanded by consumers will fall, the quantity supplied will rise, and, of course, because the market is always striving to be in equilibrium, it naturally moves back toward the equilibrium point between supply and demand.
Can all sellers find buyers in equilibrium?
In a perfectly competitive market, all sellers can find buyers in equilibrium as prices adjust to reflect supply and demand. When the market reaches equilibrium, the quantity supplied matches the quantity demanded, allowing transactions to occur. However, in real-world scenarios, factors such as market imperfections, information asymmetries, and externalities can prevent some sellers from finding buyers. Thus, while equilibrium facilitates transactions, it doesn't guarantee that all sellers will always find buyers.
Is it true that substitution effect is always negative?
No, the substitution effect is not always negative. It refers to the change in quantity demanded of a good when its price changes, leading consumers to substitute it with other goods. While a price increase typically results in a decrease in quantity demanded (a negative substitution effect), a price decrease can lead to an increase in quantity demanded, which can be viewed as a positive effect. Thus, the direction of the substitution effect depends on the nature of the price change.
Is the elasticity of demand always negative?
No, the elasticity of demand can be positive, negative, or zero. It depends on how the quantity demanded changes in response to a change in price.
Are the goods supplied equal to the goods demanded in a planned economy?
Theoritically seen: when Qs = Qd there is an ideal economic situation for a firm. You would call it a planned economy. However a(n) firm/economy cannot always be planned and thus have (as a result) a market clearing price (aka equilibrium price). So in practice, this theory of a planned economy cannot come true at all. Most economists just call these kinds of economies (where there are a lot of goods demanded equalised to goods supplied) free market ones. Hope it is clear now!
This implies that quantity demanded increases when price decreases. Is this always true?
While it is generally true that quantity demanded increases as price decreases, this relationship is not absolute. Factors such as consumer preferences, income levels, and the availability of substitutes can influence demand. Additionally, for certain goods known as Giffen or Veblen goods, the relationship may not hold, as demand may rise even with higher prices. Thus, the law of demand applies in many cases, but exceptions exist.
How do you explain supply and demand?
DEMAND- Demand means the quantity of a commodity or service that a consumer is willing to by at given price,place and time. There are three elements of demand: 1.price of a commodity 2. quantity demanded 3.a specific time and place There are many types of demand,some of them are: price demand,income demand,cross demand or joint demand,composite demand,individual demand,market demand,etc. Law Of Demand: It explains the inverse relationship between the price and quantity demanded of a commodity. It states that other things remain constant,quantity demand of a commodity increases when its price declines and vice-versa. The other things which remain constant are income of consumers,price of relatedgoods,consumer taste and prefrences,etc. Demand curve always slopes downward due to law of demand. SUPPLY- Supply refers to the quantity of a commodity offered for sale at a given price,place[market] and time. Elements of supply- 1.It is a desired quantity,how much the producers are willing to sell not howmuch they actually sells. 2.price 3.market Law of Supply- It shows the direct relationship between price f a commodity andts supply. It statestht other things be equl,the supply of a commodity increases wih the increase in its price an vice-versa. Determinants of supply are: number of producers,taxes and subidies,natural factors,uture expectations regarding price. The supply curve is upward sloping because of the law of supply.
What does it mean if a product has inelastic demand?
elasticity is the measure of how the quantity supplied of a good or service changes in response to price. therefore, inelasticity would be products that require producers to invest large sums of money in order to produce them. So when the demand for a product is inelastic, it means it doesnt change prices, or it is something that we will always need, such as oil. We will always need gas for our cars, no matter what.
What are characteristics of amplitude?
Amplitude is the measure of the magnitude of a wave, representing its maximum displacement from the equilibrium position. It is a scalar quantity and is always a positive value. Amplitude determines the intensity or loudness of a wave in sound waves and the brightness or intensity of a wave in light waves.
Does dynamic equilibrium always happen when a change occurs?
No, this is not necessarily.
How do chemists?
Chemists do it periodically - but in the end they always restore equilibrium.
What is the difference between price elasticity and cross elasticity of demand?
Cross price elasticity of demand measures how much demand of one good, say x changes when the price of another good, say y changes, holding everything else constant. For example, you can measure what happens to the demand of bread when the price of milk changes. The cross price elasticity is calculated as the percentage change in the quantity demanded of good x divided by the percentage change in the price of good y. If the cross price elasticity is negative, then we call such goods Complements (example: pizza and soft drinks -- they are consumed together). If the cross price elasticity is positive, then we call such goods Substitutes (example: pizza and burgers -- you usually consume either or). The income elasticity of demand measures the change in the quantity demanded of some good, when the income changes, holding everything else constant. For example you can measure what happens to the demand for expensive red wine when income increases. The income elasticity is calculated as the percentage change in the quantity demanded of the good divided by the percentage change in income. If the income elasticity for a good is positive we call them normal goods. It can be between 0 and 1, and we call it income inelastic demand for goods such as food, clothing, newspaper. If it is above 1, we call it income elastic demand. Examples are the red wine, cruises, jewelry, art, etc. If the income elasticity is negative, this means that as income increases, the quantity demanded for those goods actually decreases, we call those goods inferior goods. Examples are "Ramen noodles", cheap red wine, potatoes, rice. etc.
