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SHORT-RUN EQUILIBRIUM
All firms are assumed to aim at maximizing profits or minimizing losses. The monopolist controls his output or price, but not both.
The monopoly maximizes profits where: MR = MC (the necessary condition of profit maximisation)
He cannot produce at less than Qo because MR will be greater than MC. The monopolist will determine his output at Q Xo and set the price at Po and his total Revenue is OQo X OPo and the to total cost will be OCo X bQo and abnormal profits Po CO AB
A MATHEMATICAL APPROACH TO REVENUE AND COST FUNCTIONS Recall that TR = P x Q This implies that P(AR) = TR Q For example, assuming
1. Suppose in a perfectly competitive industry the market demand and supply forces combine to produce a short-run equilibrium price of Rs 70. Suppose that a firm in this industry h
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