The equilibrium level of output for a perfect competitive firm is given by the point where :
MR = MC, and MC starts rising.
A perfectly competitive firm is a price taker, so price = AR = MR and its MR curve is a horizontal line at the market price. Profit is maximised where two conditions hold together.
First-order condition: MR = MC. If \( MR \gt MC \), one more unit adds more to revenue than to cost, so output should expand; if \( MR \lt MC \), the last unit costs more than it earns, so output should contract. Neither inequality can be an equilibrium.
Second-order condition: MC must cut MR from below, that is, MC must be rising at the point of equality. A U-shaped MC curve meets the horizontal MR line twice; where MC is still falling, profit is at a minimum, and only where MC is rising is profit at a maximum.
So MR = MC is necessary but not sufficient; the equilibrium output is where MR = MC and MC is rising.
Hence, MR = MC, and MC starts rising.
Similar Questions
In the short-run, when a simple monopoly firm attains equilibrium and earns only normal profit, its level of output will correspond to :
The following are the demand and supply equations in a perfectly competitive market :
\(P = 12 + 0.3\ Q_s\)
\(P = 40 - 0.4\ Q_d\)
The equilibrium market price would be :
In case of short-run equilibrium, a perfectly competitive firm while earning abnormal profits operates at an output level where :
For the following two statements of Assertion (A) and Reasoning (R) indicate the correct code :
Assertion (A) : All firms under perfect competition in long run earn only normal profit.
Reasoning (R) : All firms under perfect competition in long run operate at the minimum average cost level.
Codes :
Match the following :
List – I List – II (i) Dumping (a) Monopolistic competitive firm (ii) Kinked Revenue Curve (b) Oligopoly firm (iii) Horizontal straight line revenue curve (c) Perfectively competitive firm (iv) Large number of buyers and sellers with differentiated products (d) Discriminatory monopoly Codes :
(i) (ii) (iii) (iv)
Assertion (A) : A monopoly firm’s revenue curve is downward sloping from left to right.
Reason (R) : The monopoly firm does not simultaneously enjoy the freedom to determine both price and quantity to be sold according to its whims and fancy.
Codes :
Assertion (A) : In long run under Perfect Competition all firms invariably get only normal profit.
Reason (R) : All firms incur minimum average cost and incur no selling cost due to absence of product differentiation.
Codes :
Monopolists prefer to sell the products in the markets with
Assertion (A) : A perfectly competitive firm is not a price-maker but is a price-taker.
Reason (R) : The firm is interested in deciding the level of output only.
Codes :
Important Questions from Price determination under different market forms
‘Oligopoly’ refers to:
Which of the following statements are true regarding price and output determination under perfect competition?
A. A firm is a price taker
B. In the long run, a firm is in equilibrium when its AR = MR = LAC = LMC
C. A firm is in equilibrium in the short run only when its AC = AR = MR = MC
D. A firm reaches its shut-down point when price goes below its AC
E. A firm fixes the price of its products when AR = MR
Choose thecorrectanswer from the options given below:
Which of the following statements regarding price and output determination under monopoly are correct?
A. A monopoly firm can fix its price anywhere along its demand curve
B. Even during short run when a monopoly firm earns normal profit, it produces less than its optimum capacity
C. The slope of monopoly's MR curve is twice the slope of its AR curve
D. Price discrimination is possible only when demand curves are identical in two markets
E. Equilibrium price of a monopolist is always higher than that of a perfectly competitive firm.
Choose thecorrectanswer from the options given below:
Which of the following statements are false regarding price and output determination under perfect competition?
(A) A firm is a price taker
(B) In the long run. a firm is in equilibrium when its AR = MR = LAC = LMC
(C) A firm is in equilibrium in the short run only when its AC = AR = MR = MC
(D) A firm reaches its shut-down point when price goes below its AC
(E) A firm fixes the price of its products when AR = MR
Choose the most appropriate answer from the options given below:
The demand curve that a firm faces in a perfectly competitive market is perfectly _______________ ; it is a _____________straight line at the market price.
