Meaning of profit
Profit refers to the excess of receipts from the sale of goods over the expenditure incurred on producing them.
Producer’s equilibrium refers to that price and output combination which brings maximum profit to the producer and profit declines as more is produced.
There are two methods for determination of producer’s equilibrium:
- Total revenue and total cost approach (TR-TC approach)
- Marginal revenue and marginal cost approach (MR-MC approach)
Both the conditions are needed for producer’s equilibrium
- MC is greater than MR after MC= MR output level
Relation between price and MC at equilibrium (when price remains constant)
When price remains same at all levels of output, then price (or AR) = MR. as equilibrium is achieved when MC=MR, it means, price is equal to MC at the equilibrium level.
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