iii. Beyond OQcuatro or point Rstep one, the TC again exceeds the TR and the firm enters in a state of loss again.
iv. Given such behaviour, a profit maximizing situation will be in the output range OQ2 to OQ4 or between point R and R1. Profit will be at its maximum where the slope of jeevansathi giriÅŸ yap TC curve equals to slope of TR curve, as per the conditions of equilibrium. As we know, two parallel lines have same slope. Thus, the point at which tangent at TC is parallel to tangent on TR will be the profit maximizing position.
v. To find out such a profit maximizing output level, we draw tangent at each point on TC, as also on TR, between points R and R1. 1 on TC curve is found to be parallel to tangent at point S on TR curve. As such, the vertical distance between TR and TC curves is at maximum at the output level OQ3. Hence, this will be the point of equilibrium satisfying both the conditions and the monopolist will earn a maximum profit SS1.
vi. Tangent on TC curve will be parallel to tangent on TR curve at output level OQ1 as well, but at this point TR exceeds TC. Thus, it is a loss maximization position. One can see that as output increases from this level, per unit loss will decline and the breakeven will be reached at point R where the monopolist will earn a normal profit. Thus, the firm will show no intention to return back to output level OQ1.
vii. Both the point R and R1 representing output levels OQ2 and OQ4 respectively are the break even points where the monopolist is in a situation of no-loss-no-profit.
In the event the TC contour stays over the TR curve anyway the products, zero profit boosting balance quantity of production can be acquired in the any amount of output. In such problem, monopolist has to decide whether or not to keep or stop production.
It depends abreast of the fact the monopolist is ready to create cash comparable to or higher versus fixed costs or perhaps not. If it’s not able to take action, it should end production entirely otherwise it should continue steadily to create even after losses on some losings minimizing number of efficiency.
Right here a question will come, have a tendency to a good monopolist enter a situation regarding losings? The truth is in the short-run good monopolist is yes come across themselves on the state regarding losings or even a beneficial shut-off situation. Like, in the event the field depresses more causing a virtually all-round fall in general cost, the price of the product regarding monopolist will slip.
And that, monopolist funds usually decline therefore the condition of losses will arise. Although not, this really is a case regarding short-run just. Eventually, a good monopolist will always secure an excellent typical finances.
Brand new MR-MC system is more often always discover equilibrium due to the fact it’s convenient and you may right. Balance regarding a good monopolist from MR-MC strategy might have been tried in Figure-eleven.5 where MR and you can SMC shape is actually drawn. Simply to remember, if there is an effective monopolist, in the place of finest competition, each other AR and you will MR curves will be down sloping.
The fresh new tangent from the area S
From the contour, the brand new downward slanting MR curve intersects the latest upward inclining MC bend on section e, the point out-of equilibrium as both the requirements from harmony are met: MR = MC at the period the latest MC cut MR of lower than.
Pricing and you can Efficiency Behavior – Short-run:
Costs below monopoly, in that way lower than best competition, is dependent upon request and supply criteria on the market. Given that quantity of consumers was large even significantly less than monopoly, the newest monopoly is like new pure aggressive market up until now since the consult top as a whole i.age. community demand is concerned. The real difference is based on new consult contour up against a firm. Less than monopoly, there is absolutely no difference in the industry as well as the company, meaning that the newest consult bend up against the fresh monopolist firm ‘s the one to faced from the purely aggressive globe, that’s down slanting.