Page 139 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics

Notes When AR is convex to the origin, MR will lie less then midway to AR (figure 9.9 (b))

When AR is concave to the origin, MR will lie more than midway to AR (figure 9.9 (c))
Figure 9.9: Relationship between MR and AR

MR MR MR

AR
AR
MR MR MR AR
O Quantity O Quantity O Quantity
(a) (b) (c)

Taking Costs into Account and Calculating Profi ts

Profits are the excess of total revenue over total costs, where total costs include both explicit and
implicit costs.

1. Equilibrium of the firm by curves of total revenue and total cost profit is the difference
between TR and TC. Thus the firm will be at equilibrium at the level of output where the

difference between TR and TC is greatest (at OM output in Figure 9.10). S and Q are break
even points.
Figure 9.10

2. Equilibrium of the fi rm by marginal revenue and marginal cost. The fi rm will be making
maximum profits by expanding output to the level where MR = MC (at OM output in

Figure 9.11).

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