Short run equilibrium explained - 1 passes from below the...

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Short run equilibrium explained: Let us study three short run possibilities with varying profits with the help of a figure. In Figure 34 we have OP the fixed market price with MR = AR for the three types of firms. The cost structures of the firms are different. Let us begin with the first firm which is more efficient. Its Average Cost curve AC
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Unformatted text preview: 1 passes from below the MR = AR curve. The point e1 marks its equilibrium position where MR = MC. The firm produces Q1 output. The Total Revenue of the firm is then, Similarly the Total Cost of producing this output is, TC = Output × Average Cost = OQ1 × Q1C1 = OQ1C1R 1 Therefore, Profit = TR - TC = OQ 1e1P -OQ1F1R = R1C1e1 P...
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