Scribd
Upload
26 views5 pages

Producer's Equilibrium

The document discusses the concept of producer's equilibrium, which is the price and output combination that maximizes profit for producers. It outlines two methods for determining this equilibrium: the Total Revenue and Total Cost Approach and the Marginal Revenue and Marginal Cost Approach. Additionally, it explains the conditions necessary for achieving equilibrium, including the relationship between marginal cost and marginal revenue under different pricing scenarios.

Uploaded by

Aishna Singh
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
26 views5 pages

Producer's Equilibrium

The document discusses the concept of producer's equilibrium, which is the price and output combination that maximizes profit for producers. It outlines two methods for determining this equilibrium: the Total Revenue and Total Cost Approach and the Marginal Revenue and Marginal Cost Approach. Additionally, it explains the conditions necessary for achieving equilibrium, including the relationship between marginal cost and marginal revenue under different pricing scenarios.

Uploaded by

Aishna Singh
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
You are on page 1/ 5

Economics

Econo Notes
mics Video Notes

Producer's
equilibrium

Class 11ᵗʰ
Meaning of profit
Profit refers to the excess of receipts from the sales of goods
over the expenditure incurred on producing them.

Producer's equilibrium
Producer's equilibrium refers to that price and output combination which brings
maximize profit to the producer and profit decline as more is produced.
Methods to determine the producer's equilibrium
There are two methods for determination of producer's equilibrium.

Total revenue and Total Cost Marginal revenue and Marginal Cost
Approach (TR-TC Approach). Approach (MR-MC Approach).

Producer can obtain the equilibrium level under two different situations
When price remain constant When price phones with rise in output

(It happens under perfect


(It happens under in perfect
competition). In the situation
competition). In the situation
from has to accept the same
form followed on pricing
price as determined by the
policy. However, it can
industry it means unquantity
increase sales only by
of the commodity can be sold
reducing the price.
at that particular price.

Marginal Revenue - Marginal Cost approach (MR-MC Approach)


MR-MC
MR = MC 10 8
8 8

MC is greater than MR after 5


8
8
8

MC=MR output level 10 8

MR = MC

MR = MC : As long as MC is less than MR it is profitable for the producer


to go on producing more because it's add to its profits. The producer stop
producing more only when MC becomes equal to MR.

MC is greater than MR after MC=MR output level: When MC is greater


than MR after equilibrium "Its means producing more will lead to decline in
profits."
Both the conditions are needed for producers equilibrium :
MC=MR : Maja aaya
We know MR is addition to TR from scale of one more unit of output and MC is
addition to TC for increasing production by one unit. Every producer aim to
maximize the total profits. For this, of firm compares its MR with its MC. Profits
will increase as long as MR exceed MC and profits will fall if MR is less than MC.
So, equilibrium is not achieved when MC<MR as it is possible to add to profits by
producing more.Producer is also not in equilibrium when MC>MR because benefit is
less than the cost. It means, the firm will be at equilibrium when MC=MR.

MC is greater than MR after MC=MR output level :


MC=MR is an necessary condition, but not sufficient enough to ensure equilibrium.
It is because MC=MR may occur at more than one level of output. However, out of
these, only that output level is the equilibrium output when MC becomes greater
than MR after the equilibrium. It is because if MC is greater than MR, then
producing beyond MC=MR output will reduce profits. On the other hand, if MC is
less than MR beyond MC=MR output, it is possible to add to profits by producing
more. So, first condition must be supplemented with the second condition to attain
the producer's equilibrium.

Producers equilibrium (When price remains constant)


Producer's equilibrium (when price remains constant)

When price remains constant, firm can sell any quantity of output at the
price fixed by the market. Producer aims to produce that level of output at
which MC is equal to MR and MC is greater than MR after MC=MR output
level
Producer's equilibrium is determined at
OQ level of output corresponding two
point K as at this point. (i) MC=MR; and
(ii) MC is greater than MR after
MC=MR output level.

Although MC=MR is also satisfied at


point R but it is not the point of
equilibrium as it satisfies only the first
condition (i.e. MC=MR). So, the producer
will be at equilibrium at point k when
both the conditions are satisfied.

Relation between Price and MC at equilibrium


(WHEN PRICE FALLS WITH RISE IN OUTPUT)
When there is no fixed price and price falls with rise in output. MR curve slope
downwords. Producers aims to produce that level of output at which MC is equal to
MR and MC curve cuts the MR curve from below.

Producer's equilibrium is determined at OM level of


output corresponding to point E at the point. (i)
MC=MR; and (ii) MC is greater than MR after
MC=MR output level

Relation between price and MC at equilibrium


( When price Falls with rise in output) When
more output can be sold only by reducing the
price, then price (or AR)> MR. As equilibrium
is achieved when MC=MR, it means, price is
more than MC at the equilibrium.

So, the producer is at equilibrium at OM units of output.


Relation between Price and MC at Equilibrium (When Price Falls with
rise in output).
When more output can be sold only by reducing the prices, then Price
(or AR)>MR. As Equilibrium is achieved when MC=MR means, price is
more than MC at the Equilibrium.

Good Job

You might also like