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# This point of intersection is called the market

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This point of intersection is called the market equilibrium point (E in Figure 1.19). It can be obtained algebraically by solving the linear demand and supply equations simultaneously. Subscribe to view the full document.

Some points worth considering in connection considering in connection with the market equilibrium with the market equilibrium are: are: 1. When the actual price is higher than the equilibrium price, the quantity demanded, qd, is less than the quantity supplied, qa (as shown in Figure 1.19). This results into a surplus of supply. This implies that “ Some producers could not sell their products at these higher prices, and would lower their prices rather than fail to sell.” “Competition among the producers would lower the average price until an equilibrium price was reached.” Here the quantity demanded just equals the quantity supplied. Subscribe to view the full document.

Figure 1.19 2. When the actual price is lower than the market equilibrium price, the quantity supplied will be less than the quantity demanded. This results to a shortage of supply. This means that “ the quantity supplied would be insufficient to meet the demand, and rather than go without a given commodity some consumers would be willing to pay higher price for it.” Competition among the consumers would raise the average price until equilibrium was reached. Subscribe to view the full document.

Figure 1.20 EXAMPLE: EXAMPLE: Given the following linear curves, each representing either supply or demand curves: x - 6y + 9 = 0 and 2x + 3y -12 = 0 where x represents quantity in hundreds of units and y, the unit price in tens of pesos. (a.) Identify which is the demand curve and which is the supply curve. (b.) Determine the market equilibrium point algebraically. (c.) Sketch the curves on the same coordinate axes and indicate the market equlibrium point. Subscribe to view the full document.

D. Break-Even Analysis The break-even point chart is a graphical representation showing the relationship among the total revenue (R), total cost (Y C ), and fixed cost (FC) equations (as shown in the Figure 1.22) Figure 1.22 Subscribe to view the full document.

Some important features in break-even analysis are the break-even analysis are the following: following: 1. The fixed cost line (FC) is parallel to the x-axis (hence slope is zero) with y-intercept equal to the cost. Set up the fixed cost equation by Y = FC. 2. The total cost line slopes upward to the right (therefore, slope is positive) with its y-intercept equal to the fixed cost. The total cost equation can be represented as: Y=(variable cost per unit)X +fixed cost Where X pertains to quantity of production. “ Fixed costs are constant and don’t vary with the level of production. Included here are non-changing costs such as president’s salary, interest on debt, and so on.” “ Variable costs are those that vary directly with the production level. Examples are labor and material costs.” Subscribe to view the full document.

Figure 1.23 shows the relationship Figure 1.23 shows the relationship among fixed cost, variable cost and total among fixed cost, variable cost and total cost cost Figure 1.23 3. The total revenue line has a positive slope and always passes through the origin (0, 0), Subscribe to view the full document. {[ snackBarMessage ]}

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