Forms of Market and Price Determination Test - 4

After the point of MR=MC ,the MC starts rising thus reducing the profits. and when MR >MC, the producer can still produce more as cost is less than revenue. So at the point of MR = MC , his profits are maximised and he earns normal profits.

Irrespective of the angle that it makes, a straight line(upward sloping) supply curve passing through the origin will have elasticity of supply = 1 

No matter what angle it makes, a straight line(upward sloping) supply curve , shooting from the origin always has elasticity of supply = 1(unitary ) 

As after MC=MR, cost will increase and so TR-TVC, i.e. profit will start declining.

before the point of MR= MC , the firm faces a situation when MR > MC, and its total revenue will be greater than its total costs which leads to abnormal profits.

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.

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. 

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.

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

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.

As under this competition, firm is a price taker and thus price fixed by the industry has to be accepted by all the firms. Thus uniform prices prevails in the market. It means revenue from every additional unit ,i.e. MR is equal to Price (AR) of the product. So, price=AR=MR.

As under this form, no seller has the tendency to influence the price of the good and there is uniform price in the market.. All the goods are homogeneous and there is free entry and exit. All these features ensures normal profit to the producers..

In a perfect competition there are large no. of buyers and sellers selling homogeneous products. The firm is a price taker and not price maker in perfect competition. So, the firm has to sell at the price determined by the market. They can sell as much as they want at the prevailing price.

the condition is LAC=LMC=P and also that the LMC curve cuts MR curve from below. In the long run firm under perfect competition earns normal profits due to freedom of entry and exit.

When AR is more than AC, then a firm can earn supernormal profits. This implies that the cost of production is less than the revenues earned. So, super normal profits are earned. Normal profits are earned when AC=AR 

In the long run the market price of the commodity is equal to minimum average cost of production because this is the point where the firm earns normal profits. If the price(AR) becomes lower the Average cost, then the firm will exit.

The resources(land, labour, capital and entrepreneurship) are free to move to the industry in which they get the best price as there is freedom of entry and exit

Producer's equilibrium occurs at MR=MC and MC should be rising. When the MC and MR are equal the profits are maximised. Any point above this, the producer will incur losses. 

because producing more after this level will increase the cost and thus lead to decline in profit.

because when the price is below the average cost curve, that means that the revenue will be less than the cost. so the firm would incur losses.

A firm under monopolisitc competition earns normal profits in the long run due to freedom of entry and exit.

As they are earning profit over and above normal profit thus revenue is much more than cost under supernormal profit.

Rational buyer has full knowledge about the product , its features and the market price of the product. Its implication is that no firm is in a position to charge a different price and no buyer will pay a higher price for a commodity.