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marginal cost=average cost

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Economics MC=AC The equation MC=AC means the point where the marginal cost (MC) curve and the average cost (AC) curve meet. Marginal cost is the change in total cost that arises when the quantity produced changes by one unit. If for example a firm produces 100 cars, the marginal cost will be the total cost the firm will have to pay to produce an extra unit. The average cost is the total cost of the firm in producing a certain amount of goods divided by the quantity of the goods produced (AC=TC/Q). The marginal cost curve meets the average cost curve at its lowest point. Marginal revenue (MR) is the change in total revenue that arises when the quantity sold changes by one unit. ...read more.


Moreover, perfect competition wipes out abnormal profits. In fact, if these are positive new firms will enter and compete by selling their products at a lower price. If they are negative, less efficient firms will go out of business and only the most innovative firms will survive with a better technology and a lower AC curve. In this situation, the abnormal profits will be zero and it will go back and the equilibrium is shown in the graph below, where P=MC=MR=AR=AC. In monopoly there is only one producer, so it represents the industry. In this market form there are no competitors as there are barriers that block other firms to enter in the business. ...read more.


In the particular case where the AC curve crosses the demand curve at the point of equilibrium, the monopolist does not earn abnormal profits (P=AC). In the monopolistic market the price usually differs from marginal cost (MC) and average cost (AC) therefore we have MC=MR that are different from MR and AC. The equilibrium described above is only theoretical because the monopolist may fear that the barrier to entry are not high enough to keep out other possible firms, which are attracted by his very high profit. In order to prevent this, the monopolist may expand the output beyond the point of the maximum profit and reduce the profit level to discourage potential competitors. Both these forms of market are only theoretical, because it is not possible to have a 100% monopoly and a perfect competition. ...read more.

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