Loss at the point of equilibrium, Managerial Economics

Q. Loss at the point of equilibrium?

Losses: At the point of equilibrium i.e. E where MR = MC, firm produces OM amount of the output. To produce this output, firm incurs an average cost of PF whereas it earns average revenue that is equal to ME. Because at equilibrium MF > ME, (AR

1473_Loss at the point of equilibrium.png

Figure: Losses

In-spite of incurring loss, firm could continue its functioning because it's Average Variable Cost is being covered. At output OM, firm covers its AVC that is equal to MG. Therefore as long as the firm is recovering at least its AVC, it would be possible for this firm to continue functioning.

Posted Date: 8/12/2013 3:23:05 AM | Location : United States

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