Notes on lesson on Theory of Price and Output Determination |

Theory of Price and Output Determination

Equilibrium of firm (MR-MC approach). Meaning, features and price and output determination under perfect competition and monopoly.


Equilibrium of Firm (MR-MC approach)

Equilibrium of firm is the situation of a firm to produce a level of output for obtained maximum profit. It is also called as the difference between Total Revenue (TR) and Total Cost (TC). The firm gives various outputs sometimes it gives low and sometimes it gives the high output which provides lower profit to firm. When the situation of nor high nor low i.e. equilibrium is obtained and it gives more profit.

Monopoly Market

The word monopoly has been derived from two English words ‘mono’ and ‘poly.’ Mono means single and poly means sellers. Thus monopoly means single seller and large number of buyers. Consequently, no buyer can influence the price of the product. They sell different types of commodities or no homogenous products. The monopolists have full right to fix his/her product price. There is no free entry or exist of firm hence monopolist has full control over the supply of the product.

Price and Output Determination under Perfect Competion

Perfect competition which may define as an ideal market situation in which buyers and sellers are so numerous and informed that each can act as a price taker, able to buy or sell any desired quantity affecting the market price.