ECON 1001 Lecture Notes - Lecture 4: Gross Profit, Variable Cost, Net Profit
Document Summary
5 this illustration the two conditions of equilibrium are satisfied at 3 units of output. Mc equals mr and mc is greater than mr when more output is produced. The producer is in equilibrium when he produces 3 units of output. When a producer can sell more only by lowering the price, the mr curve is downward sloping. Note that mc = mr condition is satisfied at both a and b. But the second condition mc is greater than mr or mc curve cuts mr from below is satisfied only at b. So, the equilibrium level of output in oq2. What would happen if the producer produces more or less of output other than the equilibrium level of output. Profits are maximized when the difference between tr and tc is maximized. Since fixed cost is constant in the short run the firm would try to maximize its profit only by covering the variable cost.
