In the short-run.therefore.the finn will he in equilibrium when it is maximising its profits. i.c.. when Marginal Revenue = AR is average revenue curve, MR is marginal revenue curve. SAC is short-run average cost curve. and SMC is the short rim Original cost curve. In these figures. marginal rev-curve (MR) and marginal cost curve (SMC) intersect each other at the output OM at which price is
OP’ t= MP). because P is point on AR (average revenue).
the linn is earning supernormal profits. Supernormal prolit per unit of output is the difference between average revenue and average eost at the equilibrium point. In this case. in equilibrium, the average revenue is MP and average cost is MT (T is on SAC). Therefore, PT is the supernormal profit per unit of output. Total supernormal profit will be measured by the area of the rectangle PTT’ output multiplied by supernormal profit per unit of output. But if the demand and cost situations arc less favourable, thcn thc monopolistically competitive linn will be raising lusses in the short-run as illustrated the price is OP’ (= MP) which is less than the average cost MT. TP is the loss per unit of the output OM t= PP’). Hence. the total loss is represented by the shaded area Thus. in the short-run. the monopolistically competitive firm may either realistic profits or suffer losses Monopolistic Competition : Long.run,
III 1″0 long-ruu, IIl”reflll”‘, I”” Ii,m i. ill ,,~uilib.
rium when output is OM, and the price is MP (= OP).
In the short-run there is only of equilibrium MarGinal Revenue = Marj!illal emit. In the long-run. however. both the conditions
must hold. i.e