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:-
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:-
What do you mean by the budget set of a consumer?
- Q:-
Briefly explain the concept of the cost function.
- Q:-
Distinguish between microeconomics and macroeconomics.
- Q:-
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
- Q:-
Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short run level of output?
- Q:-
What do you understand by positive economic analysis?
- Q:-
What does the average fixed cost curve look like? Why does it look so?
- Q:-
Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
- Q:-
Discuss the central problems of an economy.
- 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.
- All Chapters Of Class 12 Micro Economics
- All Subjects Of Class 12