Forms of Market and Price Determination Test - 2

As a firm under this competition is a price taker, i.e , which is fixed by the industry (demand and supply forces) . Therefore each firm is a price taker and faces a perfectly elastic demand curve. 

The firm will continue production till its Price or AR >= AVC. The point where its AR or price becomes less than AVC, then they will not continue production as even the variable costs are not met.

after the point of equilibrium of MR = MC, MC starts rising, so MC > MR. As cost becomes more than the revenue, the firm starts incurring abnormal losses.

When MC=MR, it ensures that producer will not produce more as cost will exceed benefit after this level.We should note here that producer will be at equilibrium only when  MC=MR  and after this lever MC should start rising. If MC is falling after the MC=MR then we cannot take that level as equilibrium level.

We know that AR=TR/output. From this we can derive TR=AR/output

In a perfectly competitive market if prices fall below the average cost of the good, then AR will become less than AC . AR<AC. In such a situation the firm will start incurring losses.

Marginal revenue is the revenue earned by selling an additional commodity.

The supply curve is relavant only for perfect competition because the price of the product is determined by the market, i.e. the forces of demand and supply. Equilibrium level is acheived when Market demand = Market supply.

Because the buyer has lot of options from where he can buy and as soon as he finds a better substitute, he shifts over. So, the seller has to be constantly aware of consumer's preferences and needs.

In perfect competition P=AR=MR as price is constant. So, we equate P=MC for equilibrium but in monopoly more products can be sold only by reducing the price. So, here Price and MR are not same. So, we have to equate MR=MC in monopoly.