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Firm equilibrium refers to a situation where a firm achieves a balance between its costs and revenues, maximizing profits. This is attained when the firm produces the level of output where marginal cost equals marginal revenue. It represents the point of optimization for the firm.
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WHAT IS production equilibrium?
Production equilibrium occurs when a firm produces a level of output where marginal cost equals marginal revenue. At this point, the firm maximizes its profit, as any increase or decrease in production would lead to lower profits. In a broader economic context, it can refer to a state where supply equals demand, resulting in stable prices in the market. This equilibrium ensures that resources are allocated efficiently in the production process.
What is the cost minimizing equilibrium condition?
The cost minimizing equilibrium condition occurs when a firm minimizes its costs while producing a given level of output. This is achieved when the ratio of the marginal product of each input to its price is equal across all inputs, meaning that the firm allocates resources in a way that each input's contribution to output is maximized relative to its cost. Mathematically, this is expressed as: ( \frac{MP_L}{P_L} = \frac{MP_K}{P_K} ), where ( MP ) is the marginal product, and ( P ) is the price of labor (L) and capital (K). Meeting this condition ensures that the firm is operating efficiently and maximizing profits.
Is internal equilibrium from quasi equilibrium?
No, internal equilibrium is not the same as quasi equilibrium. Internal equilibrium refers to a system being in a state where there is no net change in composition, while quasi equilibrium refers to a process that occurs almost at equilibrium, but not necessarily at the exact equilibrium point.
What are the two types of equilibrium and how are they different?
The two types of equilibrium are static equilibrium and dynamic equilibrium. Static equilibrium is when an object is at rest, while dynamic equilibrium is when an object is moving at a constant velocity with no acceleration. Static equilibrium involves balanced forces in all directions, while dynamic equilibrium involves balanced forces with movement.
What is difference between physical and chemical balance?
The difference is that chemical equilibrium is the equilibrium of products and reactants in a reaction while physical equilibrium is the equilibrium of the physical states of the same substance.
A firm can achieve equilibrium when its?
a firm can achieve equilibrium when its?
What is the equilibrium of a firm?
The equilibrium of a firm depends with the elasticity of a demand curve.
In long run equilibrium a purely competitive firm will operate where price is?
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What factors determine the equilibrium price and quantity for a perfectly competitive firm in the long run?
In the long run, the equilibrium price and quantity for a perfectly competitive firm are determined by factors such as production costs, market demand, and competition from other firms. The firm will adjust its output level until it reaches a point where marginal cost equals marginal revenue, resulting in an equilibrium price and quantity.
What is the graphical equilibrium of the firm?
The graphical equilibrium of a firm is represented at the point where its marginal cost (MC) curve intersects the marginal revenue (MR) curve. This intersection indicates the optimal output level where the firm maximizes its profit, as it is producing the quantity of goods where the additional cost of producing one more unit equals the additional revenue generated from that unit. In perfect competition, this point also aligns with the firm's average total cost (ATC) curve at its minimum, indicating long-run equilibrium.
How a firm reaches the equilibrium when output is given and when cost is given?
must be smaller thean the price effect
Distinguish between general equilibrium partial equilibrium analysis?
Partial Equilibrium, studies equilibrium of individual firm, consumer, seller and industry. It studies one variable in isolation keeping all the other variables constant.General Equilibrium, studies a number of economic variable, their inter relation and inter dependencies for understanding the economic system.
What will happen if an individual perfectly competitive firm charges a price above the industry equilibrium price?
If an individual in a perfectly competitive firm charges a price above the industry equilibrium price this is bad. This company will go out of business quickly because their customers will go find the lower price.
In long-run equilibrium a competitive firm produces the level of output at which?
In long-run equilibrium, a competitive firm produces at the level of output where marginal cost (MC) equals marginal revenue (MR), which is also equal to the market price (P). This occurs at the minimum point of the average total cost (ATC) curve, ensuring that the firm earns zero economic profit. At this point, the firm's resources are allocated efficiently, and there is no incentive for firms to enter or exit the market. Thus, the firm operates at an optimal scale in the long run.
WHAT IS production equilibrium?
Production equilibrium occurs when a firm produces a level of output where marginal cost equals marginal revenue. At this point, the firm maximizes its profit, as any increase or decrease in production would lead to lower profits. In a broader economic context, it can refer to a state where supply equals demand, resulting in stable prices in the market. This equilibrium ensures that resources are allocated efficiently in the production process.
Conditions of firm's equilibrium?
A firm is in equilibrium when it has no propensity to modify its level of productivity. It requires neither extension nor retrenchment. It wants to earn maximum profits in by equating its marginal cost with its marginal revenue, i.e. MC = MR. Diagrammatically, the conditions of equilibrium of the firm are (1) the MC curve must equal the MR curve.This is the first order and essential condition. But this is not a sufficient condition which may be fulfilled yet the firm may not be in equilibrium. (2) The MC curve must cut the MR curve from below and after the point of equilibrium it must be above the MR.This is the second order condition. Under conditions of perfect competition, the MR curve of a firm overlaps with the AR curve. The MR curve is parallel to the X axis. Hence the firm is in equilibrium when MC = MR = AR.The first order figure (1), the MC curve cuts the MR curve first at point X. It contends the condition of MC = MR, but it is not a point of maximum profits for the reason that after point X, the MC curve is beneath the MR curve. It does not pay the firm to produce the minimum output OM when it can earn huge profits by producing beyond OM. Point Y is of maximum profits where both the situations are fulfilled.Amidst points X and Y it pays the firm to enlarges its productivity for the reason that it's MR > MC. It will nevertheless stop additional production when it reaches the OM1 level of productivity where the firm fulfils both the circumstances of equilibrium. If it has any plants to produce more than OM1 it will be incurring losses, for its marginal cost exceeds its marginal revenue beyond the equilibrium point Y. The same finale hold good in the case of straight line MC curve and it is presented in the figure (2).An industry is in equilibrium, first when there is no propensity for the firms either to leave or either the industry and next, when each firm is also in equilibrium. The first clause entails that the average cost curves overlap with the average revenue curves of all the firms in the industry.They are earning only normal profits, which are believed to be incorporated in the average cost curves of the firms. The second condition entails the equality of MC and MR. Under a perfectly competitive industry these two circumstances must be fulfilled at the point of equilibrium i.e. MC = MR…. (1), AC = AR…. (2), AR = MR. Hence MC = AC = AR. Such a position represents full equilibrium of the industry.Short Run Equilibrium of the Firm and IndustryShort Run Equilibrium of the FirmA firm is in equilibrium in the short run when it has no propensity to enlarge or contract its productivity and needs to earn maximum profit or to incur minimum losses.The short run is an epoch of time in which the firm can vary its productivity by changing the erratic factors of production. The number of firms in the industry is fixed since neither the existing firms can leave nor new firms can enter it.PostulationsAll firms use standardised factors of productionFirms are of diverse competenceCost curves of firms are dissimilar from each otherAll firms sell their produces at the equal price ascertained by demand and supply of the industry so that the price of each firm, P (Price) = AR = MRFirms produce and sell various volumesThe short run equilibrium of the firm can be described with the helps of marginal study and total cost revenue study.Marginal Cost, Marginal Revenue analysis - During the short run, a firm will produce only its price equals average variable cost or is higher than the average variable cost (AVC). Furthermore, if the price is more than the averages total costs, ATC, i.e. P = AR > ATC the firm will be earning super normal profits. If price equals the average total costs, i.e. P = AR = ATC the firm will be earning normal profits or break even.If price equals AVC, the firm will be incurring losses. If price drops even a little below AVC, the firm will shut down since in order to produce it must cover atleast it's AVC through short run. So during the short run, under perfect competition, affirm is in equilibrium in all the above mentioned stipulations.Super normal profits - The firm will be earning super normal profits in the short run when price is higher than the short run average cost.Normal Profits = The firm may earn normal profits when price equals the short run average costs.Total Cost - Total Revenue Analysis - The short run equilibrium of the firm can also be represented with the help of total cost and total revenue curves. The firm is able to maximise its profits when the positive discrimination between TR and TC is the greatest.Short Run Equilibrium of the IndustryAn industry is in equilibrium in the short run when its total output remains steady there being no propensity to enlarge or contract its productivity. If all firms are in equilibrium the industry is also in equilibrium. For full equilibrium of the industry in the short run all firms must be earning normal profits.But full equilibrium of the industry is by sheer accident for the reason that in the short rum some firms may be earning super normal profits and some losses. Even then the industry is in short run equilibrium when its quantity demanded and quantity supplied is equal at the price which clears the market.
Equilibrium under price discrimination?
In the context of price discrimination, equilibrium occurs when a firm charges different prices to different consumer segments based on their willingness to pay, maximizing its total revenue. This practice allows the firm to capture consumer surplus and increase profits compared to a single-price strategy. The equilibrium price for each segment reflects the marginal cost of serving that segment, leading to a more efficient allocation of resources. Overall, price discrimination can alter market dynamics, often benefiting the firm while potentially disadvantaging some consumers.
