Short run Equilibrium under Monopoly Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

hi folks Lippincott and I wanted to tell
you about the short-run equilibrium of
monopoly when it comes to total costs
total revenue marginal cost and marginal
revenue approach now in that graph you
can see two dots being represented the
red dot refers to total cost and the
blue dot refers to total revenue for any
business to make profit satis obvious
that the total revenue must be greater
than the total cost now for a company to
achieve equilibrium it means that is the
point for a business where they're able
to make the maximum amount of profit or
revenue but they're spending the least
amount of money in other words their
cost is at the lowest and the revenue or
their profit is at the highest that's
the easiest way to remember equilibrium
but in order to achieve that equilibrium
it's not so easy how does the company
find out which is the best point for
them to make sure their cost is at the
lowest and their profit is at the
highest so what the company has to do is
pretty much trial and error
now when the business starts off they're
able to sell q1 units that is something
that you're able to see in the bottom
left-hand corner and there you can see
that their total revenue is much lower
than the costs that they're at correct
why is it so low because they're just
starting off they're spending a lot of
money in telling people they're telling
customers that look this is what we are
and please buy our product so they're
spending a lot of money marketing
efforts research and development all
this they're incurring a lot of cost
therefore and they're selling q1 units
the money that they're making is
actually a boss next what happens is you
have the company selling more units that
become well established and because
they're well established the efforts and
marketing on that reduces so the amount
of money they're making would be more
that is they're spending less and
they're able to sell more so that's why
they're able to come across the second
point there which is represented as q
and that's where the profit is at the
highest and that's where they're able to
achieve equilibrium but remember the
company doesn't know that this is the
best possible place for them to sell
their products and
what they actually want to do is they
want to make more profits and that's
when they try to sell q2 units now what
happens when they try to send q2 units
they incur a loss why is it that they
incur a loss maybe because they're
trying to enter into a market where the
product cannot be sold or they're trying
to get into our market where there is
too much competition ready and that's
when they can come across the total cost
that increases the total revenue they're
actually drops here the point of
equilibrium for them is B D and V that
is the place where they're able to make
sure that they're able to get the
highest amount of profit the least
amount of expense Arjun would have a new
approach and marginal cost approach is
very similar to the previous one what is
actually different here is rather than
total cost and total revenue we'll look
at what happens to a business when it
tries to sell one additional unit okay
here you can see on that graph that
marginal cost will represent to the blue
dot a marginal revenue is represented
purple dot now here you can see that
marginal cost is seen a sharp increase
while marginal revenue is seen the sharp
decrease so what's happening here the
company tries to sell more units but
unfortunately when they want to sell
more than going to impact more expenses
think of it like this if you're a person
who has a restaurant in South Bangalore
and you want to make sure use we have
another branch in North Vancouver now in
order to establish another restaurant in
North Bangalore you incur additional
cost your objective is let me sell it to
one more customer in North Bangalore in
other words marginal cost or marginal
utility all this comes in there you want
to sell more and unfortunately if you
want to sell more you'll incur more
expenses that's where you can see the
marginal cost is actually shooting up
but marginal revenue actually dips down
in order to sell more you will be
spending more but unfortunately the
amount of recovery you will come across
here through sales will not be so great
so the point of equilibrium for a
company is to make sure that marginal
cost is as less as possible
compared to marginal revenue so this is
in fact two different approaches for
short-run equilibrium of monopoly
any queries you have please leave them
in the comment section below
and we'll get back to you at the
earliest anyway guys thank you for your
time
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