Explanation
Break even point refers to the situation where the company only earn normal profit which is included in the cost. At this point, total cost is equal to total revenue and any downward shift of revenue curve from this point will lead to losses for the firm.
Therefore, if the firm is operating below the break even point then they will incur loss on the quantity short of the break even level of quantity given the price of the commodity.
Price discrimination implies that the seller in a market charges different prices for its commodity from different groups of consumers either for different uses or at different places. It is possible only when the markets are separated and the customers of one market have no idea of the price prevailing in the other market and when there is no arbitrage. Price discrimination raises economic welfare are high prices are charged from high income group and low price is charged from low income group which minimizes the effect of economic divide in an economy.
Under perfect competition, there is freedom of entry and exit of firms. Therefore, when there is super-normal profits in the market the new firms tend to enter the market to get the benefit of such profits due to which the supply of the commodity is increased and price falls and when there is super-normal loss in the market the new firms tend to exit the market to avoid such losses due to which the supply of the commodity is decreased and price increases respectively.
Due to these entry and exit mechanism, the firms in the market only earn normal profits in the long run.
Perfect competition is a type of market where there are large number of buyers and sellers who deals in homogeneous product due to which no individual unit is able to influence the price of the product and the firms have to quote a single price that prevails in the market. Therefore, firms are price taker in perfect competition.
Perfect competition is a type of market where there are large number of buyers and sellers who deals in homogeneous product due to which no individual unit is able to influence the price of the product and the firms have to quote a single price that prevails in the market.
Under perfect competition, there is freedom of entry and exit of firms. Therefore, when there is super-normal profits in the market the new firms tend to enter the market to get the benefit of such profits due to which the supply of the commodity is increased and price falls and when there is super-normal loss in the market the new firms tend to exit the market to avoid such losses due to which the supply of the commodity is decreased and price increases respectively. Due to these entry and exit mechanism, the firms in the market only earn normal profits in the long run.
Equilibrium of a firm in perfect competition is achieved when marginal cost is equal to the marginal revenue which means that the change in total revenue if an additional unit of output is sold is equal to the change in total cost if an additional unit of the same output is produced and after this point the marginal must be rising and greater than marginal revenue so MC curve should cut MR curve from below. Therefore, L curve denoting Marginal cost curve cuts N curve denoting marginal revenue curve at R where the output is Q denoting equilibrium output.
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