Class 12 Micro Economics - Chapter The Theory of the Firm under Perfect Competition NCERT Solutions | Will a profit-maximising firm in a compe
Will a profit-maximising firm in a competitive market produce a positive level of output in the short run if the market price is less than the minimum of AVC? Give an explanation.
It is not possible for a firm to produce for a firm to produce positive level of output in the short run if the price is less than the minimum of AVC. This is because as soon as the market price falls below the minimum of SAVC which implies that the firm is not able to cover its fixed as well as variable costs and thus it will stop production.
Let us understand this concept by taking an example.
At the point K price charged by the firm is on and output sold is 0q1 and the firm generates TR.
TR = P × Q
= OP × Oq1
= area (rectangle Oq1 LP)
And incurs the variable cost of TVC
TVC = SAVC × Quantity of output
= ON × Oq1
= area (rectangle Oq1KN)
Profit earned by the firm = TR – TC =TR – (TVC + TFC)
= TR – TVC – TFC
If the firm is not producing anything then at zero level of output the firms TR and VC will by zero.
However the firm has to bear TFC. Thus at zero level of output the profit earned by the firm is
Profit = π1 = TR – TVC – TFC
π1= TFC
Now if it produces Oq1 level of output then the profit earned will be
π2 = TR – TVC – TFC
= area (rectangle Oq1LP) – area (rectangle Oq1KN) – TFC
Or π2 = area (rectangle PLKN) – TFC
This implies that π1 is greater than π2. The firm incurs more loss if it produces Oq1 level of output than the loss associated with zero level of output. Thus the firm will stop production whenever P SAVC and therefore at profit maximising level of output the price must be greater than or equal to SAVC in the short run.
More Questions From Class 12 Micro Economics - Chapter The Theory of the Firm under Perfect Competition
- Q:-
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
- Q:-
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
- Q:-
How does the imposition of a unit tax affect the supply curve of a firm?
- Q:-
What is the supply curve of a firm in the long run?
- Q:-
What is the relation between market price and average revenue of a price-taking firm?
- Q:-
What is the relation between market price and marginal revenue of a price-taking firm?
- Q:-
How does an increase in the number of firms in a market affect the market supply curve?
- Q:-
Compute the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs 10.
Quantity Sold TR MR AR 0
1
2
3
4
5
6 - Q:-
How does an increase in the price of an input affect the supply curve of a firm?
- Q:-
Will a profit-maximising firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? Give an explanation.
Popular Questions of Class 12 Micro Economics
- Q:-
Explain the concept of a production function
- Q:-
What would be the shape of the demand curve so that the total revenue curve is?
(a) A positively sloped straight line passing through the origin?
(b) A horizontal line?
- Q:-
Explain market equilibrium.
- Q:-
Discuss the central problems of an economy.
- Q:-
What do you mean by the budget set of a consumer?
- Q:-
What is the total product of input?
- Q:-
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity
1
2
3
4
5
6
7
8
9
Marginal
Revenue
10
6
2
2
2
0
0
0
-
- Q:-
When do we say that there is an excess demand for a commodity in the market?
- Q:-
What do you mean by the production possibilities of an economy?
- Q:-
What is budget line?
Recently Viewed Questions of Class 12 Micro Economics
- Q:-
Explain the concepts of the short run and the long run.
- Q:-
Explain the concept of a production function
- Q:-
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity
1
2
3
4
5
6
7
8
9
Marginal
Revenue
10
6
2
2
2
0
0
0
-
- Q:-
If a consumer has monotonic preferences, can she be indifferent between the
bundles (10, 8) and (8, 6)? - Q:-
If duo poly behavior is one that is described by Cornet, the market demand curve is given by the equation q = 200 - 4p and both the firms have zero costs, find the quantity supplied by each firm in equilibrium and the equilibrium market price.
- Q:-
The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity are given in the schedules below.
Quantity
0
1
2
3
4
5
6
7
8
Price
52
44
37
31
26
22
19
16
13
Quantity
0
1
2
3
4
5
6
7
8
Price
10
60
90
100
102
105
109
115
125
Use the information given to calculate the following:
(a) The MIR and MC schedules
(b) The quantities for which MIR and MC are equal
(c) The equilibrium quantity of output and the equilibrium price of the commodity
(d) The total revenue, total cost and total profit in the equilibrium
- Q:-
List the three different ways in which oligopoly firms may have.
- Q:-
What do the long-run marginal cost and the average cost curves look like?
- Q:-
Compare the effect of shift in the demand curve on the equilibrium when the number of firms in the market is fixed with the situation when entry-exit is permitted.
- Q:-
Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
- All Chapters Of Class 12 Micro Economics
- All Subjects Of Class 12