TR, TC Approach & MR, MC Approach for Equilibrium Under Perfect Competition
Summary
TLDRThis video script delves into the TRTC, MR, and MC approaches for determining equilibrium in a perfectly competitive market. It explains that total revenue (TR) is the income from goods and services, while total cost (TC) includes all production expenses. The script uses a diagram to illustrate where firms achieve maximum profit, emphasizing the point where the gap between TR and TC is the greatest. It also covers the MR (marginal revenue) and MC (marginal cost) approach, highlighting that equilibrium is reached when MR equals MC and MC cuts MR from below, ensuring a stable and profitable market position.
Takeaways
- π The TR (Total Revenue) is the total amount of money a firm receives from selling goods and services, while TC (Total Cost) is the expenditure incurred for producing output.
- π° Profit is calculated by subtracting Total Cost from Total Revenue, and the goal is to find where the firm gets maximum profit.
- π The diagram with the TR curve above the TC curve shows the firm is making a profit, as total revenue exceeds total cost.
- π Maximum profit for a firm occurs where the distance between the TR and TC curves is the greatest, indicating the highest point of profit.
- π The equilibrium points E and E1 on the diagram show where total cost equals total revenue, resulting in zero profit.
- π The areas before and after the equilibrium points E and E1 where the TC curve is above the TR curve indicate losses for the firm.
- π The MR (Marginal Revenue) is the additional income from selling one more unit, and MC (Marginal Cost) is the cost of producing one additional unit.
- βοΈ Equilibrium in a perfectly competitive market is achieved when MR equals MC and MC cuts MR from below, indicating a stable point.
- π The diagram with MR and MC curves helps to visually understand the conditions for equilibrium and profit maximization.
- π The area where the MR curve is above the MC curve indicates potential profits, while the area where MC is above MR indicates potential losses.
- π A stable equilibrium point is identified where both MR equals MC and MC cuts MR from below, ensuring both profit maximization and stability.
Q & A
What does TR stand for in the context of the script?
-TR stands for Total Revenue, which is the total amount of money that a firm gets from selling its goods and services.
What is the definition of Total Cost (TC) as mentioned in the script?
-Total Cost (TC) refers to the total expenditure incurred by a firm for producing a particular amount of output.
How is profit calculated in the TR and TC approach?
-Profit is calculated by subtracting Total Cost (TC) from Total Revenue (TR).
What does the TR curve represent in the diagram discussed in the script?
-The TR curve in the diagram represents the total revenue of the firm, showing how revenue changes with different levels of output.
What does the TC curve indicate in the diagram?
-The TC curve in the diagram indicates the total cost of the firm, showing the cost incurred for producing various levels of output.
What is the significance of the point where TC equals TR in the diagram?
-The point where TC equals TR signifies a situation where the firm is making zero profit, as the revenue exactly covers the cost.
Why is the distance between the TR and TC curves important in determining profit?
-The distance between the TR and TC curves is important because it represents the profit margin; a greater distance indicates higher profit.
What does the MR stand for in the MR and MC approach discussed in the script?
-MR stands for Marginal Revenue, which is the additional income that a firm receives from selling one more unit of a good or service.
What is the definition of MC in the context of the MR and MC approach?
-MC stands for Marginal Cost, which is the cost of producing one additional unit of output.
What are the two conditions that must be satisfied for equilibrium in the MR and MC approach?
-The two conditions for equilibrium are: 1) MR must equal MC, and 2) MC must cut MR from below, indicating that before the equilibrium point, marginal cost was less than marginal revenue.
Why is the point where MR equals MC and MC cuts MR from below considered a stable equilibrium point?
-This point is considered a stable equilibrium because it satisfies both conditions for equilibrium, indicating that the firm is maximizing profit and is in a stable state where it has no incentive to change its level of output.
Outlines
π Understanding TR, TC, and Profit in Perfect Competition
The first paragraph introduces the concept of Total Revenue (TR) and Total Cost (TC) in the context of perfect competition. It explains that TR is the total income from selling goods and services, while TC is the total expenditure for producing output. The paragraph then discusses how profit is calculated by subtracting TC from TR. A diagram is used to illustrate the points where the firm makes zero profit (E and E1) and where it makes a profit (between E1 and E). The maximum profit is identified as the point where the gap between TR and TC is the greatest, labeled as 'a b' in the script. The explanation emphasizes the importance of this gap for determining the firm's maximum profit.
π MR and MC Approach to Equilibrium in Perfect Competition
The second paragraph delves into the Marginal Revenue (MR) and Marginal Cost (MC) approach to finding equilibrium in a perfectly competitive market. It defines MR as the additional income from selling one more unit and MC as the cost of producing one additional unit. Two conditions for equilibrium are highlighted: MR must equal MC, and MC must cut MR from below. The paragraph uses a diagram to demonstrate these concepts, identifying a stable equilibrium point 'B' where both conditions are met. The script clarifies that before point 'A', MC was above MR, indicating losses, and at point 'B', the firm achieves a stable equilibrium with both conditions satisfied, indicating profit.
Mindmap
Keywords
π‘Total Revenue (TR)
π‘Total Cost (TC)
π‘Profit
π‘Equilibrium
π‘Marginal Revenue (MR)
π‘Marginal Cost (MC)
π‘Perfect Competition
π‘Diagram
π‘Maximum Profit
π‘Stable Equilibrium Point
π‘Homogeneous Products
Highlights
Introduction to TR and TC approach for determining equilibrium in a perfectly competitive market.
Definition of TR (Total Revenue) as the total amount of money a firm gets from selling goods and services.
Definition of TC (Total Cost) as the total expenditure incurred by a firm for producing a certain output.
Calculation of profit by subtracting Total Cost from Total Revenue.
Explanation of how to determine where a firm gets maximum profit using a diagram.
Description of the diagram with output on the x-axis and Revenue, Cost, and Profit on the y-axis.
Identification of points E1 and E where Total Cost equals Total Revenue, resulting in zero profit.
Analysis of the area between E1 and E where the firm gets profit as Total Revenue exceeds Total Cost.
Emphasis on the maximum profit point where the distance between TR and TC is the greatest.
Introduction to the MR and MC approach for equilibrium determination.
Definition of MR (Marginal Revenue) as the income received from selling one additional unit.
Definition of MC (Marginal Cost) as the cost of producing one additional unit.
Conditions for equilibrium: MR must equal MC and MC should cut MR from below.
Diagram explanation showing MR as a horizontal line and MC as a curve.
Identification of points A and B where MR equals MC, highlighting the unstable equilibrium at point A.
Analysis of the stable equilibrium point B where both conditions (MR = MC and MC cuts MR from below) are satisfied.
Conclusion summarizing the TR, TC, MR, and MC approach to determining equilibrium in a perfectly competitive market.
Thank you message and sign-off from the presenter.
Transcripts
hello everyone my name is minisetti I
hope you all are staying healthy today
we are going to talk about trtc Mr and
MC approach for determination of
equilibrium under perfect competition
Market firstly we are going to talk
about TR and TC approach as we know TR
is total revenue and total revenue is
total amount of money that firm gets
from selling its goods and services
total revenue is total amount of money
that firm gets from selling its goods
and services on the Netherland thesis
total cost and total cost is total
expenditure incurred by a form for
producing particular amount of output
and we can calculate profit when we
minus total cost from total revenue in
this approach we basically talk about
where firm getting maximum profit or we
can say that we are from getting higher
profit now with the help of this diagram
we will see where from getting maximum
profit where from getting higher profit
in this diagram on x-axis we have output
and y axis we have Revenue cost and
profit in this diagram this black TR
land shows total revenue of the firm and
this red TC curve shows total cost of
the firm and this PP blue curve shows
total profit of the firm at this e point
total cost is equal to total revenue
that's why here from getting zero profit
again at even point total cost is equal
to total revenue that's why here from
also getting zero profit before E point
you can see total cost is more than
total revenue total cost above from
total revenue curve that's why this part
show lows again after even point total
cost is more than total revenue this
part also shows lows now question is
that where firm getting profit a firm
getting profit between E1 and E point
because between e and E1 point total
revenue is more than total cost you can
see total revenue curve above from total
cost this part this part basically shows
profit but in this approach we basically
talk about where form getting maximum
profit where from getting higher profit
a firm get a maximum profit where
distance between TR and TC is maximum
please listen carefully our firm get
maximum profit or we can say the firm
get a higher profit where distance
between TR and TC is higher you can see
a b distance between TR and T is higher
before a b point you can see distance is
reducing after a b Point distance also
reducing means profit or form is
reducing a b is maximum or we can say
the a b is higher gap between TR and TC
that's why this a b shows maximum profit
of the firm now we will see maximum
profit with the help of this profit
curve this pp's profit this R Point
shows maximum profit because at this R
point gap between t is maximum you can
see this a b Gap this is maximum Gap it
shows maximum profit of the firm now we
will say Mr and MC approach as soon as
marked their Revenue income that we
receive from one additional unit
marginary value means income that we
receive by sale of one additional unit
and amps is our marginal cost cost of
producing one additional unit and in
order to get equally between two
conditions must be satisfied Mr equal to
m c and second conditional MC cut Mr
from below please listen carefully in
order to get equilibrium two conditions
must be satisfied Mr equal to m c plus m
c cut Mr From Below we clearly
understand these conditions with the
help of this diagram in this diagram on
x-axis we have output and y axis we have
cost and revenue this horizontal line
shows Mr and air of the form and This MC
Curve Soul marginal cost of the firm you
can see at this a point at this B Point
margin revenue is equal to marginal cost
you can see at the same
y a is not a stable equilibrium point
because at a point Mr is equal to m c by
cutting from above node From Below
cutting from above means before a point
a margin cost was more than margin
Revenue you can see coarse curve is
above from revenue curve this part
basically shows lows at this a point
margin event is equal to the course but
we didn't get any profit yet if we
didn't get any profit yet then how this
a can overstable equilibrium point at
this B Point whatever both condition is
satisfied Mr is equal to m c plus m c
cut Mr From Below you can see cutting MC
cutting Amber from below cutting From
Below means before B Point our margin
Revenue was more than one
this part basically shows profit means
before B Point form on lot of profit at
B Point Mr is equal to m c plus MC cut
Mr from below that so this is our stable
equilibrium point because here were both
conditions are satisfied Mr is equal to
m c plus MC cut Mr from below this is
all about trtc Mr and MC approach of
determination of equilibrium under
perfect competition Market I think you
got it and thank you so much for
watching this video bye take care
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