Equilibrium of a firm

Equilibrium of a firm - The vertical line eQ intersects the...

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Equilibrium of a firm The firm attains equilibrium at a point e which is a point of intersection of the dd and DD curves. In the equilibrium position a firm sells output Q at price P. The total revenue of the firm is equal to the area OQeP. In order to find the profit of the firm we have to introduce the cost curve and work out the total cost of production. For this purpose, Chamberlin has used LAC, the Long run Average cost Curve of the firm. This is because of the fact that the firm’s adjustments and the rivals’ reaction process is time-consuming. It can be completed only in the long run.
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Unformatted text preview: The vertical line eQ intersects the cost curve at point S which determines average cost of producing output Q. The total cost that the firm has to bear in producing output Q units is equal to the area OQSC. The difference between total revenue and total cost shows extra profits that the firm earns. These are equal to the area CSeP. Profits TR - TC = OQeP -OQSC = CSeP Under monopolistic competition the conditions that matter are the demand curve and the average revenue of the firm. Any reference to marginal revenue and marginal cost is not necessary for such equilibrium....
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This note was uploaded on 11/26/2011 for the course ECONOMIC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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Equilibrium of a firm - The vertical line eQ intersects the...

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