Producer Equilibrium Class 11 Notes

This is one of the shortest chapters in the Microeconomics book with only 4 to 6 marks weightage in exams. Here are producer equilibrium class 11 notes.

Profit

Profit refers to the excess of receipts from the sale of goods over the expenditure incurred in producing them.

Producer’s Equilibrium

It refers to that price & output combination which brings maximum profit to the producers & profit declines as more is produced.

There are 2 methods for the determination of producer equilibrium:
1) TR-TC Approach
2) MR-MC Approach

MR-MC Approach Under Perfect Competition

Under perfect competition price is determined by the industry & firm is the taker of that price. The price remains the same.

According to this approach, the producer’s equilibrium refers to the stage of that output level where:
a) MC = MR
b) MC > MR, after MC = MR

Explanation:

• When the price remains constant, firms can sell any quantity of output at a price fixed by the market.
• Price remains the same at all the levels of output, also MR = AR.
• Hence, the AR curve is similar to the MR curve.
• The producer’s equilibrium will be determined at the OQ level of output because at this point both the conditions are satisfied i.e.
  a) MC = MR
  b) MC > MR after MC = MR
• Although MC = MR is also satisfied at point A it is not the point of equilibrium because at this point only the first condition is satisfied (MC=MR).
• Hence, the producer’s equilibrium will be achieved at 5 units of output.

Production Function Class 11 Notes Microeconomics

Producers Equilibrium Under Imperfect Competition

Under imperfect competition, price falls with the rise in output, hence MR curves slope downward. Under imperfect competition, the producer will be at equilibrium when the following 2 conditions are satisfied:
1) MC = MR
2) MC > MR after MC = MR

Output is shown on the x-axis & revenue and cost on the y-axis. Producer equilibrium will be determined at the OQ level of output corresponding to point E.

At this point, both the conditions required to be at equilibrium are satisfied, i.e.
1) MC = MR
2) MC > MR after MR = MC

One Marker Questions

Q1: What is meant by profit?
A: Profit refers to the excess of revenue over cost.

Q2: What are the two methods for the determination of the producer’s equilibrium?
A: The two methods for determination of the producer’s equilibrium are:
i) TR-TC Approach
ii) MR-MC Approach

Q3: What is meant by the equilibrium output of a producer?
A: Equilibrium output of a producer refers to that level of output at which the profits of a producer are maximum.

Q4: At a certain level of output, the marginal cost of a firm is above its marginal revenue. Can this be its equilibrium output?
A: No, it cannot be its equilibrium output because the marginal cost exceeds the marginal revenue. The firm is running at a loss.

Q5: Is it enough to say that profit is maximized when MC=MR?
A: No, along with MC=MR, another necessary condition is that MC should be rising.

Q6: If MR is more than MC at a particular level of output, then the producer will?
A: Increase production.

Q7: What is the general profit-maximizing condition for a producer(MR and MC approach)?
A: (i) MC=MR and
(ii) The MC curve cuts the MR curve from below (i.e. MC is rising).