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 long run if the market price is less than the minimum of AC? Give an explanation.
It is not possible for a firm to produce positive level of output in the long run if the market price falls short of the minimum of AC. This is because in the long run there is free entry and exit of firms and all firms earn normal profit. Therefore any firm making losses in long run will stop production.
Let us understand this concept through an example:
At oq1 level of output
Price charged by the firm = OP.
Revenue generated by the firm (TR) = P × Q
= OP × Oq1
= area (rectangle Oq1LP)
Cost of producing Oq1 level of output (TC)= LAC × Quantity of output
ON × Oq1
TC = area (rectangle Oq1KN)
Profit earned by the firm = TR-TC
= area (rectangle Oq1Lp)-area (rectangle Oq1KN)
= - area (rectangle NKLP )
Thus the loss incurred by the firm is equal to the area of the rectangle NKLP.
In the long run all firms earn zero economic profit and if any firm earns loss or negative profit then the firm will shut down its production thus if the firm earn loss i.e. if price is lesser than LAC at any level of output it will not be the profit maximising output level of the firm.
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:-
Can there be a positive level of output that a profit-maximising firm produces in a competitive market at which market price is not equal to marginal cost? 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:-
Briefly explain the concept of the cost function.
- Q:-
What do you mean by substitutes? Give examples of two goods which are substitutes of each other.
- Q:-
What are the average fixed cost, average variable cost and average cost of a firm? How are they related?
- Q:-
List the three different ways in which oligopoly firms may have.
- Q:-
What will happen if the price prevailing in the market is?
i. Above the equilibrium price
Ii. Below the equilibrium price
- Q:-
Suppose the demand and supply curve of commodity XX in a perfectly competitive market are given by:
qD =700 - p
qs = 500 + 3p for p ≥ 15
= 0 or 0 ≤ p <15
Assume that the market consists of identical firms. Identify the reason behind the market supply of commodity X being zero at any price less than Rs 15. What will be the equilibrium price for this commodity? At equilibrium, what quantity of X will be produced?
- Q:-
A monopoly firm has a total fixed cost of Rs 100 and has the following demand schedule:
Quantity
1
2
3
4
5
6
7
8
9
10
Marginal
Revenue
100
90
80
70
60
50
40
30
20
10
Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost is Rs.1000, describe the equilibrium in the short run and in the long run.
- Q:-
What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?
- Q:-
Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?
- Q:-
Explain why the budget line is downward sloping.
- All Chapters Of Class 12 Micro Economics
- All Subjects Of Class 12