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PRODUCER EQUILIBRIUM,[object Object]
PRODUCER EQUILIBRIUM,[object Object],The ultimate aim of any firm is to earn the maximum profit possible.,[object Object],Producer equilibrium is the situation of PROFIT – MAXIMISATION .,[object Object],At equilibrium, the firm has the maximum level of output being produced and earning the maximum profit out the same.,[object Object],It is the equilibrium level of output which the producer will  produce at MINIMUM COST and sell to earn MAXIMUM PROFIT. ,[object Object]
INTRODUCTION,[object Object],To explain producer equilibrium, both isoqaunt and isocost has to be analysed.,[object Object],Producer equlibrium can be explained graphically with the use of both the isoquant curve and isocost line.,[object Object],It is attained at the point where the isocost line is tangent to the isoqaunt curve in the graph.,[object Object]
ISOQAUNT ,[object Object],It refers to equal quantity.,[object Object],Isoqaunt line is the locus of points showing combination of factors ( ex: Labour and capital) which gives the producer the same level of output.,[object Object],It reveals the combination of input, to get a quantity of output.,[object Object],Slope of the graph gives the Marginal Rate of Technical Substitution (MRTS),[object Object]
GRAPH,[object Object]
ISOCOST,[object Object],It refers to equal cost.,[object Object],It is the cost of purchase of two factors (capital and labour) of production in a budget.,[object Object],Isocost line shows the locus of points showing the combination of inputs that can be purchased with the available budget.,[object Object], The slope gives the ratio of wages ‘w’(Labour) and rate of interest ‘r’(Capital) Slope = w/r.,[object Object]
GRAPH,[object Object]
PRODUCER EQUILIBRIUM,[object Object],It is attained at the point where the isocost line is tangent to the isoquant curve.,[object Object],It is the point where the isoqaunt curve just touches the isocost line.,[object Object],It doesn’t intersect the isocost line.,[object Object],Slope of the isoqaunt curve and isocost line are the same at this point,[object Object],MRTS = w/r,[object Object]
GRAPH,[object Object]
PROFIT MAXIMISATION,[object Object], 1) The isocost/isoqaunt Method:,[object Object],	Profit is maximized when the slope of isoqant is equal to slope of isocost.,[object Object], 2) The marginal revenue/marginal cost method,[object Object],	At that output, MR (the slope of the total revenue curve) and MC (the slope of the total cost curve) are equal.,[object Object],	These are two approaches of profit maximisation in producer equilibrium.,[object Object]
ISOCOST/ISOQAUNT ,[object Object]
Cont’d….,[object Object],In the graph above, CD  is the isocost line that is tangent to the isoqaunt curve 400 units at point Q. The firm employs OC units of factor Y and OD units of factor X to produce 400 units of output. ,[object Object],In the graph any point below Q on the isocost line AB is desirable as it shows lower cost, but it is not attainable for producing 400 units of output and points R&S above Q on isocost lines GH, EF show higher cost.,[object Object],These are unattainable by producer with CD budget. Hence point Q is the least cost point for producing 400 units of output with OC units of factor Y and OD units of factor X. Point Q is the equilibrium of the producer.,[object Object],At this point, the slope of the isoquants equal to the slope of the isocost line.,[object Object]
MARGINAL REVENUE/MARGINAL COST,[object Object],This can be obtained with the help of concept of marginal cost (MC) and marginal revenue (MR),[object Object],Marginal revenue (MR) – the change in total revenue associated with a change in quantity.,[object Object],Marginal cost (MC) – the change in total cost associated with a change in quantity.,[object Object],A firm maximizes profit when MC = MR and slope of MC > slope of MR,[object Object]
How to Maximize Profit,[object Object],If marginal revenue does not equal marginal cost, a firm can increase profit by changing output.,[object Object],The firm will continue to produce as long as marginal cost is less than marginal revenue.,[object Object],The supplier will cut back on production if marginal cost is greater than marginal revenue.,[object Object],Thus, the profit-maximizing condition of a competitive firm is MC = MR,[object Object]
CONCLUSION,[object Object],Therefore firms produce maximum level of output with minimum cost of production and earn the maximum profit during producer equilibrium.,[object Object]

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Producer equilibrium

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