CBSE Class 12-commerce Answered
Expert Answer
In the long run, profit maximising firm will not produce an output level where the market price is lower than the AC.
At Q level of output, the market price is lower than the average cost in the long run.
The total revenue is the product of price and quantity and the total cost is the product of average cost and quantity.
The firm’s total revenue TR at the output level OQ is the area of the rectangle OPCQ while the total cost TC is the area of the rectangle OABQ. As the area OABQ is more than the area OPCQ, the firms incurs loss at Q level of output. In the long run, the firm may shut down the production which has zero profit. OQ level of output is not a profit maximising output level. Therefore, the market price must be greater than the average cost in the long run.
ANSWERED BY EXPERT ANSWERED BY EXPERT ANSWERED BY EXPERT ANSWERED BY EXPERT ANSWERED BY EXPERT ANSWERED BY EXPERT ANSWERED BY EXPERT ANSWERED BY EXPERT ANSWERED BY EXPERT ANSWERED BY EXPERT
