Given below is the cost schedule of a product produced by a firm. The market price per unit of the product at all levels of output is Rs. 12. Using marginal cost and marginal revenue approach, find out the level of equilibrium output. Give reasons for your answer :
| output (units) | 1 | 2 | 3 | 4 | 5 | 6 |
| average cost (in RS) | 12 | 11 | 10 | 10 | 10.4 | 11 |
The producer’s equilibrium refers to the situation in which he maximises his profits. A producer achieves an equilibrium when two conditions are satisfied.
i. MR = MC
ii. MC is rising or the MC curve cuts the MR curve from below.
| units | average cost | total cost | marginal cost |
| 1 | 12 | 12 | 12 |
| 2 | 11 | 22 | 10 |
| 3 | 10 | 30 | 8 |
| 4 | 10 | 40 | 10 |
| 5 | 10.4 | 52 | 12 |
| 6 | 11 | 66 | 14 |
This table indicates that the two conditions of equilibrium are satisfied only when 5 units of output are produced. It is here that
(i) MR = MC = Rs 12 and
(ii) MC is rising.
The market price per unit of the product is Rs 12. Thus MR = 12.
the first an the other conditions are being met at unit 5. Thus equilibrium output is 5 units.
Aggregate demand can be increased by : (choose the correct alternative)
(a) increasing bank rate
(b) selling government securities by Reserve Bank of India
(c) increasing cash reserve ratio
(d) none of the above
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called : (choose the correct alternative)
(a) Statutory liquidity ratio
(b) Deposit ratio
(c) Cash reserve ratio
(d) Legal reserve ratio
Good Y is a substitute of good X. The price of Y falls. Explain the chain of effects of this change in the market of X.
Or
Explain the chain of effects of excess supply of a good on its equilibrium price.
State different phases of the law of variable proportions on the basis of total product. Use diagram.
Or
Explain the geometric method of measuring price elasticity of supply. Use diagram.
