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Equilibrium of the firm in the short and long run. Economic equilibrium of an enterprise (firm)

Equilibrium of the firm in the short and long run. Economic equilibrium of an enterprise (firm)

11.10.2019

Based on this definition and taking into account the above analysis of equilibrium in the theory of supply and demand, we can consider the equilibrium state of the firm and the national economy. It should be noted that the same trend will be traced here. the relationship between supply and demand at the firm level and at the macroeconomic level.

Firm equilibrium

How does the firm determine the price of its product and the volume of production? After all, it would seem that the higher the company sets the price and the greater the volume of production it produces, the more profit it will receive. However, not all so simple. Consider the basis on which the firm makes decisions, taking into account the line of behavior of the enterprise in various market structures.

A) Under perfect competition

In conditions of pure competition, the demand for the product of one firm will be perfectly elastic, since the share of each firm in the market is so small that it cannot affect either the market price or the market output. Therefore, the demand curve for the firm's product is always horizontal.

The firm's supply will be represented by a marginal cost curve. And since in conditions of perfect competition the price, marginal revenue and average revenue are equal, we can derive the condition that the firm focuses on when choosing the volume of production,

those. P=AR=MR=MS.

Moreover, this rule is valid both in the short term and in the long term. In a short-run equilibrium, a competitive firm can make a profit or a loss. Let's consider various variants of short-term equilibrium in fig. 54.

On fig. Figures 54a and 54b show firms that make a profit: fig. 54a - the firm has an economic profit, fig. 54b - the firm has a normal profit. In these cases, the firm fully covers the costs, has a profit and wants to maintain this position for as long as possible. On fig. 54c and 54d show firms that are making losses. Moreover, if the firm in Fig. 54g covers its current costs (i.e., the cost of raw materials, materials, wages to workers), the costs of AVC are less than the price, it can hope for a price increase in the future and to stabilize its position, then the firm in Fig. 7.9.1. does not even cover its variable costs and is forced to close.

Thus, in the short run, under conditions of perfect competition, the firm is in equilibrium when it produces such a volume of output at a given market price at which the firm either maximizes profits or minimizes losses.

Rice. 7.9.1. Firm equilibrium

In the long run, the firm's equilibrium condition can be written as:

MR=MC=AC-P;

those. in the long run, the firm receives only normal profit, since under conditions of free entry and exit from the industry and the availability of complete information about the product from producers and buyers, too high profits attract other firms to production, and unprofitable firms leave the industry or go bankrupt and then in the industry equilibrium is established: neither profit nor loss (see Fig. 7.9.2.).

Let us now consider the opposite situation, when there is only one seller of a product in the market that has no substitutes.

b) In a monopoly

If, under conditions of perfect competition, the firm needs to choose only the volume of production, since the price is set in the market and is a given value, the monopolist determines both the volume of production and the price at which profit is maximized.

Let us analyze the behavior of a monopoly firm in the short run. The market demand curve with a negative slope acts as a demand curve for it (compare for a competitive firm, where the demand curve is absolutely elastic, and at the same time this curve also acted as a line of average and marginal income). Therefore, the monopolist must take into account that the demand of his firm is imperfectly elastic. If he raises the price, he will lose some of his customers; if he lowers the price, he will be able to sell more. Thus, by setting this or that volume of sales, the monopolist simultaneously sets the price.

Rice. 7.9.2. Perfect competition in the long run

Figure 7.9.3.a shows how the monopolist determines the price P m and output Q m , and what would be the price P c and output Q c under perfect competition, where P c =MC.

On fig. 7.9.3.b presents the equilibrium of a monopoly firm that maximizes profits. The volume of production Q m is such that the marginal revenue curve intersects the marginal cost curve, and the price of the monopolist will be the price corresponding to this volume. Then the conditions for maximum profit under monopoly conditions are:

The monopolist always charges a price that is higher than his marginal cost. Three conclusions can be drawn from the above:

1) the monopolist does not set the maximum possible price that he would like to receive;

2) follows from the previous one: the monopolist avoids the inelastic section of the demand curve when choosing a decision on sales volume and price (try to prove by a numerical example that while МR>0, demand is elastic and the gross income curve is increasing, and vice versa, as soon as МR<0, а спрос неэластичен, то валовой доход начинает падать);

Rice. 7.9.3. Equilibrium under monopoly

3) under the equilibrium of firm MS<Р m . Этой разницей иногда пользуются для определения степени монопольного влияния фирмы с помощью Lerner index:

The higher the Lerner index, the higher the monopoly power of the firm and the weaker the elasticity of demand will be.

It should be noted that a monopoly position in itself does not guarantee that a firm will always receive a positive profit. The situation shown in Fig. 7.9.3.c, when buyers do not want to pay such a price for products that would provide the monopolist with the cost of producing these products. In this case, the volume of production Q m , at which MC=MR, provides the monopolist with minimization of losses.

For a long-run monopoly firm, it expands its operations until it produces a quantity equal to marginal revenue and long-run marginal cost.

If a monopolist can make an economic profit at a fixed price, then, therefore, free entry to the market for any other sellers is impossible. If there were free entry, it would be impossible to maintain a monopoly for a long period, since the entry of new firms would increase supply, which would lower the price to a level that would allow only a normal profit.

V) In conditions of monopolistic competition

After analyzing the equilibrium conditions for firms in the opposite situation, i.e. pure competition and pure monopoly, which are extremely rare in real life, one can easily analyze the equilibrium of firms that exist in real life.

Determining the demand curve of a firm operating in conditions of monopolistic competition, it can be stated that it will be less elastic than the demand curve of a competitive firm, and more elastic than the demand curve of a monopolist. The degree of elasticity also depends on both the number of competitors and the depth of product or service differentiation. A negative slope of the demand curve means that less goods are produced under monopolistic competition than under perfect competition.

The firm's supply curve is represented by the marginal cost curve.

The short-term equilibrium of the firm is described by the rule МR=МС, graphically it (equilibrium) is presented in fig. 7.9.4.a and 7.9.4.b, where, similarly to the previous analysis, a profit-maximizing firm (Fig. 7.9.4.a) and a loss-minimizing firm (Fig. 7.9.4.b) are shown.

In the long run, any firm producing a product under monopolistic competition can expand by building new or larger facilities, but the economic profits will attract competing firms into production in the long run. As the supply of a good increases, the price of the good will fall. Long-term equilibrium (Fig. 7.9.5.) Is similar to equilibrium under perfect competition: no firm will earn more than normal profit.

Rice. 7.9.4. Short-run equilibrium of a firm under monopolistic competition

Rice. 7.9.5. Long-run equilibrium of a firm under monopolistic competition

In reality, however, the firm's equilibrium situation is much more complex than presented in the previous analysis, since the firm, in order to maximize profits, must manipulate three variables: price, product, and promotional activity. Question to decide: what is the optimal combination and how can competitors affect it?

G) In an oligopoly

It is impossible to unambiguously determine the equilibrium of an oligopolistic firm due to the specificity of this market structure. There are three fundamentally possible options for the behavior of a firm in the oligopoly market:

1) Uncoordinated oligopoly - a variant of a broken demand curve and price rigidity.

2) Collusion (cartel) of firms, on which the principle of maximizing joint profits is based.

3) Leadership in pricing - the situation of directive prices.

Let us consider in more detail the main types of oligopolistic situations.

1. Situation of uncoordinated oligopoly

The name itself suggests that there is uncertainty between the rivals in relation to each other due to the lack of an agreement. Firms in the industry believe that if they raise the price, competitors will not follow them, demand in this case will be very elastic, and vice versa, if firms lower prices, then competitors will follow their pricing policy and also lower prices, then demand will become inelastic.

Under these conditions, the demand curve takes on a strange broken shape at the price point, as shown in Fig. 7.9.6.

Fig.7.9.6. Uncoordinated oligopoly

This model explains the relative rigidity of prices under an oligopoly. Any increase in prices by one firm may cause other firms not to follow and therefore lose customers. Lowering the price in order to increase sales will not lead to the desired results, as competitors can reduce prices and maintain their market share.

2. Cartel.

This situation is most often characterized by a secret collusion between the participants. And then the variant of behavior in setting the price and sales volume will be similar to the situation of pure monopoly, where the demand curves of firms merge into one. The price is set at a level that provides maximum profit for all contracting companies. Further, the profit is divided on the basis of determining the quotas of each in the total production volume.

3. Leadership in pricing represents a compromise between uncoordinated oligopoly and collusion.

In practice, this situation is observed everywhere. One firm, usually the largest, acts as the price leader and sets the price to maximize its own profit. The rest of the firms in the industry begin to accept the leader's price as given. And then this model can be represented as a partial monopoly. However, in order not to upset the balance, the leader often "probes" the attitude of competitors, setting prices that would suit everyone else.

In addition to these situations, one can single out pricing that limits entry into the industry. In this case, firms set prices so as not to maximize current profits, but to maximize long-term profits by preventing new sellers from entering the market.

Equilibrium of the national economy

In the theory of macroeconomic equilibrium, two approaches are distinguished: classical and Keynesian. Let's consider them separately.

1. Classical model of macroeconomic equilibrium

As in microeconomics, the equilibrium in macroeconomics between the price level and real output is determined by the intersection point of the aggregate demand and aggregate supply curves.

Macroeconomic equilibrium involves the interaction of aggregate demand and aggregate supply to determine the general price level and gross national product in a free market. This, in turn, will allow us to discuss the two most important issues facing both society as a whole and the governments of countries with a market economy: inflation and unemployment.

Fig.7.9.7. Macroeconomic balance

The impact of aggregate demand AD and aggregate supply AS is shown in the graph (Fig. 7.9.7.), Where the Keynesian segment - I, classical - III and intermediate - II are highlighted on the AS curve. At intersection point A, firms hire as much labor as they think necessary given the real cost of labor, which in turn depends on the current wage rate and the prevailing price level. This is why firms have no desire to deviate from A. Workers also have no incentive to deviate from the intersection point by negotiating wages and working conditions with employers. However, not all workers may be satisfied with this situation, especially those who cannot find a job that pays at existing rates, but they are powerless to change anything in the current situation.

Equilibrium point A suits workers as consumers of goods and services. At a given price level, they can buy as much as they want. This provision extends to firms and abroad: they spend as much as they want, acquiring goods and services produced domestically. Consequently, no economic entity has an incentive to deviate from A - the equilibrium point, which determines both the general price level and the size of GDP.

What happens if the balance is disturbed for any reason? Firms produce as much of the good as they see fit at the existing price level in B, i.e. they produce less goods than in A, receiving a lower price for their products. Consequently, B has fewer workers and higher unemployment.

Since B on the graph is below the aggregate demand curve, then individual economic entities purchase less goods and services than they would like. (At a given price level, they would prefer to be in C.) Thus, aggregate demand exceeds aggregate supply (deficit) by the value of the segment BC.

How will the economic system react to this situation? Producers will raise the price, and buyers themselves may offer higher prices due to shortages. As prices rise, the excess of aggregate demand over aggregate supply equalizes due to an increase in supply and a decrease in demand. When the gap closes, the price level will stabilize. There is a process of automatic regulation similar to the process in microeconomics.

Summing up the above analysis, we can conclude that the economy itself, without outside intervention, will move towards the equilibrium point if supply is lower than demand. It is quite obvious that if the economy is above A, the "invisible hand" of the market will contribute to the creation of an equilibrium position in the national market.

The strength of a market economy lies in its inherent mechanisms of self-regulation ("invisible hand", in the words of A. Smith). If producers see that their goods are no longer bought at existing prices, they themselves, on their own initiative, use both adjustment mechanisms, i.e. reduce both the volume of production and the price of it. The driving force behind this behavior is profit making. If manufacturers do not Respond to market signals, they will inevitably be squeezed out by competitors and risk losing their capital investment.

2. Keynesian approach to macroeconomic equilibrium

The specifics of this approach are as follows:

Equilibrium of the national income is also possible under conditions of full employment;

Price rigidity;

Savings are a function of income, i.e. S=С o +(1-MPC) x Y, then investments and savings are determined by different factors. If we recall that the produced national income is defined as Y = C + S, and the used ND-Y = C + I, then C + I = C + S, and we can write that I (r) \u003d S (Y), where r is the market rate of interest.

This equality is the condition of macroeconomic equilibrium.

Along with the classical model of equality of aggregate demand and aggregate supply, one can derive a variant of equilibrium in the "income-expenditure" model, also called the "Keynesian cross" (see Fig. 7.9.8.).

Point E 0 in fig. 61 shows such an equilibrium position of the national economy, when ND is equal to consumer spending, and S=0, i.e. a stagnating economy. When adding private investment (Y=C+I) and then government spending (Y=C+I+O), the national economy will tend to a state of full employment (P).

This state can also occur under the influence of the multiplier effect, as discussed above.

Fig.7.9.8. Canisan Cross

It should be noted that an increase in the marginal propensity to save with an increase in the level of ND does not always favorably affect the state of the national economy. In a stagnant economy (i.e., during a period of stagnation of all economic activity), combined with underemployment, a reduction in consumption will lead to overstocking and a decrease in national income, i.e. the paradox of frugality emerges.

Graphically, the violation of macro balance will have the form shown in Fig. 7.9.9.

Fig.7.9.9. macro balance disorders

In position Y 1 with AD>AS under full employment conditions, an inflationary gap occurs, i.e. I>S, therefore, the lack of savings will lower the level of investment, resulting in a decrease in production, which, with growing demand, increases inflation.

In position Y 2 with AS>AD under full employment conditions, a deflationary gap occurs, i.e. S>I. This situation is characterized by the growth of production with low current demand, which leads the national economy into a state of recession.

Macroeconomic equilibrium is possible E p , with HD=Y p, where AS=AD and I=S.

Properties of macroeconomic equilibrium:

1. Inflation is always the result of an excess of aggregate demand over aggregate supply, since in the absence of an excess of aggregate demand there is no reason for prices to rise. Although the excess of aggregate demand can occur for various reasons, including due to the state budget deficit and monetary expansion

2. Macroeconomic equilibrium does not guarantee full employment.

3. In a state of macroeconomic equilibrium, the volume of imports may exceed the volume of exports, therefore, the state accumulates external debt. In the opposite situation, foreign exchange reserves increase.

4. Under macroeconomic equilibrium, the government bears the cost of providing public goods and services to its citizens. If government spending exceeds tax revenue, the deficit is financed either by external borrowing or by additional emission of money. This situation affects the state of aggregate demand and aggregate supply, as will be discussed in other chapters.

Firm equilibrium in the short run.

Modern economic theory states that profit maximization or cost minimization is achieved if and only if marginal revenue equals marginal cost (MR = MC).

Let's consider this condition in more detail. Let's plot the quantity of production on the abscissa axis, and the total income and costs on the ordinate axis (see Fig. 13).

TR, TC Total revenue and costs

Rice. 13. Firm production and profit maximization

Total revenue is a straight line from the origin (see Figure 2) and total cost is the sum of the fixed and variable cost curves (see Figure 9).

By connecting both graphs, it is easy to understand the extent to which the activity of the enterprise that generates income varies. The maximum profit is made when the gap between TR and TC is the largest (segment AB). Points C and D are points of critical production volume. Before point C and after point D, total costs exceed total income (TC > TR), such production is economically unprofitable and therefore inexpedient. It is in the interval of production from point K to point N that the entrepreneur makes a profit, maximizing it with an output equal to OM. Its task is to gain a foothold in the nearest neighborhood of point B. At this point, the slopes of marginal revenue (MR) and marginal cost (MC) are: MR = MC. Thus, the condition for profit maximization is the equality of marginal revenue to marginal cost.

Comparison of marginal income with marginal costs can be carried out directly (see Fig. 14).

Rice. 14. Costs and profits in a competitive firm in the short run

Production should be continued up to the point of intersection of the marginal cost curve with the price level (MC = P). Since, under perfect competition, the price is set independently of the firm and is perceived as given, the firm can increase production until marginal cost is equal to their price.

If MS< Р, то производство можно увеличивать, если МС >P, then such production is carried out at a loss and should be stopped. On fig. 7.16 total income (TR = PQ) is equal to the area of the rectangle OMKN. The total cost of the TS is equal to the area of ORSN, the maximum of the total profit (Pr max = TR - TS) is the area of the rectangle MRSK.

In conditions of short-term equilibrium, four types of firms can be distinguished (see Fig. 15).

Rice. 15. Classification of Firms under Short-Run Equilibrium

The firm that manages to cover only the average variable costs (AVC = P) is called the marginal firm.

Such a firm manages to be "afloat" only for a short time (short-term period). In the event of a price increase, it will be able to cover not only current (average variable costs), but also all costs (average total costs), i.e., receive a normal profit (like an ordinary premarginal firm, where ATC = P).

In the event of a price decrease, it ceases to be competitive, since it cannot even cover current costs and will be forced to leave the industry, being outside it (an outrageous firm, where AVC > P). If the price is greater than the average total cost (ATC< Р), то фирма наряду с нормальной прибылью получает сверхприбыль.

Firm equilibrium in the long run. In the long run, a firm can change all its resources (all factors become variable), and an industry can change the number of its firms. Since the firm can change all its parameters, it seeks to expand production, reducing average costs.

In the case of increasing productivity, the average total costs decrease (see the transition from ATS 1 to ATS 2 in Fig. 16) with decreasing productivity, they increase (transition from ATS 3 to ATS 4).

0 M M 1 Quantity X

Rice. 16. Average total cost in the long run

Connecting the minimum points ATS 1 , ATS 2 , ATS 3 , ..., ATS n , we get the average total costs in the long run ATS L .

If there is a positive scale effect, then the long-run average cost curve has a significant negative slope; if there is a constant return to scale, then it is horizontal; finally, in the case of an increase in the costs of increasing the scale of production, the curve rushes up (see Fig. 17 a). In different industries, this happens in different ways (see Fig. 17 b, c).

Rice. 17. Different Types of Long Run Average Total Cost Curves

The growth of production in the long run, the entry of new firms into the industry may affect the prices of resources. If an industry uses non-specific resources (which are demanded by many other industries), then the price of the resource may not rise. In this case, the costs remain unchanged (see Fig. 18).

Rice. 18. The supply curve of an industry with fixed costs is perfectly elastic in the long run.

However, in most industries, additional demand for a resource causes an increase in its price (Fig. 19).

Rice. 19. The supply curve of an industry with increasing costs is upward in the long run

Finally, there are industries with declining costs in the long run. Such a decline is usually associated with an increase in the scale of production, due to which the demand for resources is relatively reduced. In this case, the price of the resource decreases.

Let's summarize. In conditions of perfect competition in the long run (Fig. 20.), the maximum profit is achieved when the equality is fulfilled:

MR=MC=P=AC. (9)

Rice. 20. Equilibrium position of a competitive firm in the long run

Any entrepreneurial firm in its activities seeks to maximize profits, i.e., to increase the difference between income and costs .. In a short period, the company cannot change either the overall size of its facilities or the number of machines and equipment used in production. During this period, they remain constant, as they do not change after the change in the volume of production. Other factors of production (labor, capital) can change, therefore they are variables. Consider the rational behavior of a firm under perfect competition. In a perfectly competitive market, no firm affects the price of its product. The price is set only under the influence of the total market demand and supply of all firms. The value of its costs is determined by the technology of the enterprise. To get the maximum profit, the entrepreneur can only change the volume of production. To decide how many products to produce and sell, it is necessary to compare the market price of the product and the marginal cost of the firm.

If marginal revenue is greater than marginal cost, then each unit produced adds more to total revenue than it adds to total cost. In this regard, the difference between marginal revenue (MR) and marginal cost (MC), i.e. profit (Pr), increases: Pr=MR-MC. The opposite happens when marginal cost is higher than marginal revenue, i.e. the maximum total profit is achieved when there is equality between price (P) and marginal cost (MC): P = MC.
If P > MC, then production must be expanded. If R

A long period is such a period of time during which the company is able to change the capacity of its facilities and equipment, depending on constantly changing levels of production. The problem of firm-industry equilibrium in the long run is different than in the short run. The equilibrium position is reached if the firm produces a certain amount of output at the minimum average cost of the long period, since in this state (point) the price is equal to marginal cost.
The rational behavior of the firm in conditions of imperfect competition has some features. In an imperfectly competitive market, a manufacturer (firm) influences the price of its products. If in the market of perfect competition the additional income from the sale of successive units of products is unchanged and equal to the market price, then in the market of imperfect competition, an increase in sales reduces the price, and hence the additional, i.e. marginal, income (MK - marginal revenue) . There are two ways to determine the volume of production at which the firm will receive the maximum profit.
The first method compares gross income and gross costs for each volume of production. Where the TR and TC curves intersect (point K), the profit Pr is zero. On segments where the TC curve is above the TR curve, the firm suffers losses. Between the segments of the intersection of these curves, where the TR curve lies above the TC curve, there is a profit zone. The maximum profit will be where there is the greatest distance between the TR and TC curves. In the second method of determining the optimal volume of production, marginal income and marginal costs are compared. In order to maximize profits in conditions of imperfect competition, production and sales volumes should be increased until the marginal cost associated with the production of each additional unit of output is less than the marginal income received from the sale of this unit of output: if MR > MC, production should be expanded if MR

Equilibrium firms on market. Conditions equilibrium. Any entrepreneurial firm in its activities seeks to maximize profits, i.e., to increase the difference between income and costs ..

Equilibrium firms on market. Conditions equilibrium. Any entrepreneurial firm in its activities seeks to maximize profits, i.e. to stole.

monopoly in conditions equilibrium. If in conditions perfect competition firm on market

monopoly in conditions equilibrium. If in conditions perfect competition firm you can choose only the volume of production, because. price is set on market and is a given number, then the monopoly determines both the volume of production and the price, with a cat. maximum...

A loan is a loan in cash or commodity form for conditions return, urgency, etc.
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Price discrimination is one way to expand market sales in conditions monopoly.
Unambiguously define equilibrium firms-oligopolist is impossible due to the specificity of this structure.

Conditions equilibrium
Equilibrium firms on market. Conditions equilibrium. Any entrepreneurial firm in its activities seeks to maximize profits, i.e. to increase ... more ».

IN conditions perfect competition demand for one product firms will be elastic, because share of each firm market insignificant that she cannot
IN conditions short-term equilibrium competitive firm may have profit or loss. ATS - total costs.

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Any firm in its activities in a competitive market seeks to use a minimum of resources for the production of goods, minimizing its costs. However, she does not want to be defeated in the competition with other firms to meet the needs of customers. A modern firm produces not what it can, but what the market needs. For her, the starting point in deciding on the production of goods is its market price. Focusing on it, the company determines for itself the level of acceptable costs.

The firm's equilibrium is a special single position of the firm in the market, in which it most rationally uses resources and achieves the best of all possible results. All other positions of the firm in the market are non-equilibrium. In this case, we are not talking about the simultaneous equilibrium of all firms in the market - the general economic equilibrium, but about the fact that a firm, independently of others, can be in a state of equilibrium.

We know that the conditions of perfect competition are an ideal system for analyzing a market economy, so let's consider the issue on its example.

In conditions of perfect competition (situation I), the manufacturer cannot influence prices. They are set by the market and determine the limit at which a firm either enters or leaves an industry.

If commodity prices rise (situation II), more and more new firms enter the industry, acting along with the old ones.

If prices fall (situation III), which is also typical in a modern market economy, then firms with high average costs leave the industry and the market, respectively.

In situation I, the minimum value of the average cost of the firm coincides with the market price, which indicates that the firm is only able to cover its costs at best. Otherwise, she will have to leave the market, since it will not be profitable for the company to produce this product, the costs will exceed the market price. However, firms that find themselves in a similar situation do not leave the market. The fact is that, as you know, an entrepreneur in his costs includes not only fixed and variable, but also alternative ones. Therefore, the described situation does not mean the absence of income. In this case, it is equal to the opportunity cost. A firm in this position in the market is called a marginal firm.

In situation II, the minimum value of the average total costs per unit of output is higher than the market price, and limiting production to a certain volume of output only minimizes the company's inevitable losses in this case. This is important, since it is not always possible for a company to promptly and quickly stop the production of goods, due, for example, to contracts already concluded for the supply of products or for technological reasons. In any case, if the firm suffers losses, they must first be minimized and then liquidated. A firm in situation II inevitably faces the question: either leave the market, or reorganize, reduce costs.

In situation III, the minimum average cost is below the market price. In this case, the company receives excess profit, i.e. more than normal income equal to opportunity cost. In a certain range of production, this excess income remains, though gradually decreasing. Each firm strives to be in this particular situation in the market, and often some of them succeed. However, firms in other industries, seeing that excess profits are formed here, begin to produce and sell similar products. As a result, when demand remains unchanged, supply increases, and this leads to lower prices and a reduction in excess profits. It is clear that firms always receive excess profits temporarily and strive to use this time as efficiently as possible, for example, by trading without days off and holidays, and often around the clock.

Ultimately, the excess returns disappear and the firms find themselves in situation I, i.e. "ultimate" firm. If prices continue to fall further, then situation II arises, a number of firms with the highest costs will leave this market, and the average costs of the rest will be equal to the market price, i.e. the position of the "marginal" firm will again arise. That is why situation I and the position of the “marginal” firm are the normal state of the market, and the rest are only a deviation from the norm towards losses or excess profits.

From what has been said, it follows that the equilibrium of a firm is closely related to its position in the market, primarily with the "marginal" firm. However, for the final consideration of the question of the equilibrium of the firm, the analysis of average costs per unit of output is clearly not enough: it is necessary to involve the apparatus of marginal costs.

The firm, increasing production volumes, goes to additional (marginal) costs for the sake of additional benefits, additional (marginal) income.

marginal revenue is the additional income that arises from an increase in production per unit of output. Under certain conditions, marginal revenue can take a negative value and, in essence, become a loss. To prevent this from happening, managers constantly compare marginal revenue with marginal cost, feeling for the minimum value of marginal cost and the maximum value of marginal revenue. At the same time, they strive to create situation III for the company in the market, i.e. get excess profit, but more often there is a situation I - "marginal firm". In any case, they try to avoid intermediate situation II, when the firm is forced to leave the market, giving way to competitors.

The marginal revenue of the firm is closely related to its gross income, is its growth. The gross income of the firm itself depends on the level of prices and production volumes, i.e.

where TR - gross income, P - price, Q - production volume.

Then marginal revenue MR = ΔTR /ΔQ.

In conditions of perfect competition, marginal revenue is always equal to the market price of the product, since the firm cannot influence the price: MR = P.

Let's take an example. Suppose the price of one ballpoint pen in the market is 10 rubles. The Salyut company produces 20,000 such fountain pens. in year. Its gross income in this case for this type of product is 10 rubles. x 20 thousand pieces = 200 thousand rubles. The company increases production by 10% (up to 22 thousand units). Then the gross income will be equal to 10 rubles. x 22 thousand pieces = 220 thousand rubles. However, the marginal revenue is 10 rubles. (220 thousand rubles - 200 thousand rubles: 22 thousand pieces -20 thousand pieces \u003d 20 thousand rubles: 2 thousand pieces \u003d 10 rubles), i.e. MR = R.

By introducing into the analysis the concept of marginal revenue and using the category of marginal cost, it is possible to mathematically accurately determine the equilibrium point of a firm under conditions of perfect competition. It is obvious that the firm will strive to expand production until each additionally produced unit of output will provide additional income, i.e. MC condition will be observed< MR. Иначе неминуемо фирма понесет убытки. Графически эта ситуация будет выглядеть следующим образом.

The point M shown on the graph characterizes the firm as an equilibrium one, i.e. reached an optimum in terms of production. Further growth of income due to an increase in production volumes in this case is impossible. Any deviation from this point leads to losses:

To the right: with an increase in production volumes, there are direct losses;

To the left: when production is reduced, there is a shortfall in the maximum possible income. In Russia, a rare entrepreneur perceives such a situation as a loss: most of them are not familiar with the concept of “lost profits”.

As a result, the equilibrium condition for a competitive firm will look like:

where MC - marginal costs; MR - marginal revenue; P - the market price of the goods.

1. Firm equilibrium in the short run

In the market of perfect competition in one industry, there are many firms that have the same specialization, but different directions of development, scale of production and cost. If the price of goods and services begins to rise, this encourages the entry of new firms into the market that wish to carry out their production and marketing activities here, and also strengthens the position of existing ones that occupy a large market share. With a decrease in the cost of products sold on the market for goods and services, weak and small firms, due to excessively high costs, cannot compete and disappear from the market. Given the magnitude of marginal cost, i.e., the amount of costs for the manufacture of an additional unit of output, three possible characteristics of a competitive firm can be distinguished.

1. The organization earns zero profit. In other words, after the sale of finished products, it receives such an amount of income that it is only enough to cover the minimum costs. This means that the production itself is inefficient, perhaps outdated equipment and technologies are used, and the quality system is poorly developed. As a result, this does not allow saving on resources and production factors, and labor and material intensity indicators are very high. In this case, the firm is uncompetitive.

2. The firm receives excess profit or quasi-rent. This is possible in the case when the average cost of production is less than the established market price, i.e., the cost of production tends to decrease. As a rule, this is due to the progressive development of the achievements of scientific and technical progress and the development of departments in the organization that are aimed at developing long-term strategies and market development.

3. The company's revenue does not allow it to cover even minimal costs, the cost of production is much higher than the market price. At the same time, an organization cannot raise prices just like that, since perfect competition implies that the education system belongs to any production. Thus, the company is on the verge of bankruptcy, it goes bankrupt and leaves the market.

If we talk in general about the point of optimal activity of the firm, we can conclude that average costs, in principle, do not allow us to characterize production, since the entrepreneur is interested in the growth of total profit, and not its average.

The equilibrium condition of the firm in the short run implies the coincidence of the marginal cost and the marginal revenue that can be obtained from the sale on the market of each subsequent unit of goods and services produced. Any organization tries to organize production in such a way that this equality is achieved. It should also be noted that the perfectly competitive market itself has one feature: in it, marginal revenue always equals price. Accordingly, three types of market situation can be considered.

1. The cost of a unit of production is approximately at the same level as the average cost. In this case, the total income of the company from conducting production and economic activities coincides with the total costs, which characterizes the receipt by the entrepreneur of a normal profit.

2. The total profit that can be received at the end of the production cycle and the sale of products on the market exceeds the gross costs that went to production, marketing, advertising, etc. Thanks to this, the company has the opportunity to get quasi-profit or its maximum value

3. The cost of the firm to produce one unit of output is much higher than the market price. This indicates that the firm is incurring losses. Perhaps the reason lies in the irrational use of production factors, material resources, or technologically obsolete equipment. In any case, such production is considered unprofitable and respecialization or restructuring is required.

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