Show normal profit equilibrium, Managerial Economics

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Q. Show Normal profit equilibrium?

Normal Profits: With the condition of  MC = MR and MC cuts the MR from below, if E is the point of stable equilibrium, output of firm is OM. produce this output, firm incurs an average cost ME, whereas it earns average revenue, that is also equal to ME. So, we see that the firm just makes a normal profit - i.e., its AR = AC. Because the total revenue earned and total cost incurred at output OM is OPEM, firm earns a normal profit.

2181_Show Normal profit equilibrium.png

Figure: Normal profit equilibrium


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