1. Relationship between long-run & short- run average cost curves O Output Cost SRAC 1 SRAC 2 SRAC 3 SRAC 4 SRAC 5 Q0Q0 Q1Q1 Q2Q2 Q3Q3 LRAC

2. O O P QQ AR,MR (Rs) D S 55 D = AR = MR 2m1m3m m = millions 20040060080010001200 Deriving a firm’s AR & MR curves: ‘price-taking’ firm (a) The market(b) The firm TR at Q = 800 TR at Q = 400 P

3. TR curve TR Q 2000 4000 400800 O

4. Revenue of a ‘price-making’ firm facing a downward sloping demand curve Q (ships) P = AR Rs. Crores TR Rs. Crores MR Rs. Crores 188 2714 3618 4520 54 6318 7214 6 4 2 0 -2 -4

5. The market O Q Q1Q1 S D Rs Crores Q2Q2 S` P1P1 P2P2

6. Q (ships) P = AR Rs. Crores TR Rs. Crores MR Rs. Crores 188 2714 3618 4520 54 6318 7214 6 4 2 0 -2 -4 Revenue of a ‘price-making’ firm facing a downward sloping demand curve

7. MR AR r Inelastic elastic Q X AR, MR Rs. Crores

8. Є > 1 Є = 1 Є < 1 TR Total revenue for a firm facing a downward sloping demand curve 1357

9. Q (units) TRTCT π 006-6 1810-2 214122 318144 420182 52025-5 61836-18 71456-42 Total revenue and total cost approach to profit maximization

10. T π TR TC π = Vertical distance between the TC & TR MAX π = 18 – 14 = 4 18 14 Q TR, TC Scale on x axis Smooth curves

11. QP=ARTRMRTCACMC T π A π 0906-6 18810 -2 271412621 3618144 2/3 41 1/3 4520184 1/2 2 1/2 5420255-5 631836?-18-3 7214568-42-6 6 4 2 0 -2 -4 8 2 2 4 7 11 20 4 TABLE

12. MR e MC Q MR < MC MR > MC Q* MC, MR

13. MR MC Q Q* AR AR = 6 AC AC= 4 2/3 L T K F Costs, revenue TC = OQTF Π = KLTF TR = OKLQ*

14. Loss minimizing output O AR MR MC AC Q* Loss AC AR Q Costs, revenue