Equilibrium of the firm – AR and MR having downward slope

 The following figure shows that the firm has a downward sloping demand curve or average revenue curve. The corresponding MR curve is also down sloping from left to right. The MC curve is rising. At point R marginal cost curve cuts marginal revenue curve from below. This is equilibrium position of the firm. The equilibrium […]

Equilibrium of the Firm – When AR and MR are horizontal.

 The figure given below the illustrate equilibrium of the firm. When AR is constant MR becomes equal to it. MR intersects MC at R and R1. At both these points MC is equal to MR. Point R can not be a determinate equilibrium point since beyond this point, the MC is lower than MR and […]

Cost Analysis in the Long Run ( Period)

The long Period The long period is defined as the period that is long enough for the inputs of all factors of production to be varied. In this period no factor is fixed, all are variable factors. Firm has enough time to change its scale of production. It can purchase and install new machinery or […]

Relationship between Average Cost and Marginal Cost

There is a direct relationship between AC and MC curves. When AC falls MC also falls and is below AC. When AC is rising, MC also rises and is above AC. When AC is at its minimum MC equals it. It is easier to understand the relationship with the help of Fig. This fig shows […]

Relation between AC & MC

Average Cost is simply the total cost (TC) divided by the number of units produced (Q) or it is per unit cost. On the other, marginal cost is defined as the increment to total cost that comes from producing an increment of one unit output. The relationship between AC and MC is illustrated in the […]

Average total cost and output and short term cost analysis

Average cost, consists of average fixed costs and average variable costs. As we see, average fixed costs begin to fall with an increase output while average variable costs come down and rise. Till the average variable cost come down, the average total cost also comes down, but a point comes when the average variable costs […]