Economics in Business - Essay Example

A monopolistic form always tries to set the output by equating Marginal Revenue (MR) and Marginal Cost (MC). In other words when MR = MC the firm was able to maximize their profit. From the diagram it is clear that the monopolistic firm started to make profit from the point where Price (Pm), Output (Qm) intersect with the MC and MR curves. In a monopolistic market the Price would be greater than the Marginal Cost (P>MC). In a competitive market no firms can fix the price. Every firm enjoys only a normal profit in such markets.

The equilibrium attains only when MR=MC. Profit of a firm depends on the difference between Average Revenue AR (Price) and Average Cost AC. In other words a firm would be able to make super profit when AR>AC. On the other hand when AR