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Explain the Equilibrium of a Firm by Total Revenue (TR) and Total Cost (TC) Approach with the help of Diagram.

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Impertect and Monopoly Market : In the Graph , Output Quantity is shown on x-axis and Total Revenue (TR), Total Cost (TC) and Quantity of Profit are shown on y-axis . Total Revenue (TR) Curve begins from Zero. If the Output Quantity is Zero , the Total Revenue will be Zero as well. As the Output Increases , Total Revenue Increases and the Revenue Curve Rises Up to the Right . Total Cost (TC) Curve begins from Point C and OC is the Fixed Cost . Even if the Output is Zero, the Firm has to bear Expenditure Equal to OC. The Difference between Total Revenue (TR) and Total Cost (TC) gives the Total Profit (TP) . The TP Curve is derived from the Difference between TR and TC Curve.

Initially TC > TR at Output Level ‘K’ derives Total Profit (TP) Curve , which is located in Negative Region .On Point M , when the Total Revenue (TR) is Equal to Total Cost (TC) the Firm makes Neither Profit , Nor Loss . This Condition is called Break Even Point i.e. Zero Profit at Point ‘K’ . When the Output is between Point K and L, the Total Revenue is More than Total Cost . In this Region, TR Curve is above TC Curve i.e. TR > TC and Total Profit is Positive . Tangents GH and IJ are drawn to find the Maximum Difference between TR and TC. The Distance between TR and TC Curves is the Most at Points E and F , where these Tangents Touch Total Revenue and Total Cost Curves. The Equilibrium Output Quantity is OQ on this Out Level. Thus the Quantity of Maximum Profit is SQ. On Output at KQ, the Difference between TR and TC is Increasing i.e. Total Profit is made at Increased Rates and is Maximum at Point S . Profit is also made at QL , but the Difference between TR and TC goes on Reducing and the Profit also begins to Decline. The TP Curve begins to Slope or Fall Down. On Point N, the Total Revenue (TR) is again Equal to Total Cost (TC). This is called Break Even Point where thare is No Loss or No Profit . After Output Quantity OL, if the Firm Produces More and the Cost Increases , resulting in less Revenue i.e. TC > TR , the Firm Sustains Loss . The Total Revenue (TR) Curve is Below the x-axis . The Profit is Negative and Denotes the Loss to the Firm . In the Graph given, the Equilibrium of the Firm is at Output Quantity OQ as here the Difference between Total Revenue (TR) and Total Cost (TC) is the Maximum . Profit Quantity SQ is Maximum .

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