2 Questions –
Q1- In Profit Maximisation Situation of Markets
MR =MC=P[because of perfectly elastic ED] [Perfect Competition]
and
MC=MR but not=P [because P is determined by consumers ][Monopolistic competition]
This is what I have Understood.First of all I need confirmation that what I have understood is correct or not .
Secondly, there is a line sir Said in this situation that MC must be rising and it is valid for all kinds of markets so I want the explanation of this that why MC must be rising[Explanation ]?
Q2-
IN LONG RUN
P= AC [PERFECT COMPETITION] AND AC is minimum
P=AC [MONOPOLISTIC COMPETITION] And AC is not minimum
My question is what’s the logic behind AC Being minimum and maximum in both cases and whats its meaning?
Answer for Question 2
AC is minimum in the Perfect competition because it is at the minimum level of LRAC curve(because of optimal utilization)
AC is not minimum in the Monopolistic competition because it is not at the minimum level of LRAC curve(because of under utilization)
You mean to say that Perfect Competition companies have less AC because they spend less on ads and R and D .On the other hand Monopolistic comp. companies have no min AC because they spend on such things right?
And what about Question no 1?
Answer for Question 1
You have understood it clearly
MC must be rising means, MC cuts MR from below and goes above.
In the supply and demand , the output of Q” is the intersection point of MR and MC. The firm produces at this output level can maximize profits. (MR-MC) When produced less than Output of equilibrium quantity (Q), MR is greater than MC. ‘The firm produce extra output because the revenue of gaining is more than the cost to pay. So, total profit will increase’. However, if the output level is greater than Q. MR<MC . The firm profit will decrease because the extra unit level increase the cost which is greater than the revenue. So, total profit will decrease.
Ok so MC must rise till the point it reaches equilibrium [MC= MR] RIGHT ??
BUT why we are saying that MC Must rise when it’s already MC=MR[equilibrium ].In this situation, if MC rises then the profit will also decrease right as you said so why we are saying it then even if it is at equilibrium already