Q21 Q21 Q22 Q23 . the marginal rate of substitution diminishes X for Y along an curve. Slope of the curve is referred as tbc Marginal Rate of Sub,utution Rate is the rate at which the consumer always. gives right of another indifference curve repreEnB a higher level of satisfacton. The of goods which lies on a higher indifference curve will be preferred by a combination which lies on a lower indifference curve. IC curve is downward sloping:because more of one good is with remain at the same level of satisfaction. Using the judgement as an entrepreneur, would you agree with the following statement? "Muimisation of profit implies equilibrium, but equilibrium does not always imply rnuirneaim profits." Schedule 2 marks Conditions 2 marks Explanation 2 marks Draw average variable cost,average total cost and marginal cost in a single and expl*n their relationship. Ans: diagram 3 marks Relationship 3 marks a)The price elasticity of supply of a commodity y is half the price elasticity of supply of commodity x. 16 per cent rise in the price of x results in a 40 per cent rise in its supply. If the price of y falls by 8 percent, calculate the percentage fall in its supply. b)what is the effect on the supply curve of the firm in case the price falls below the minimum AVC. Give reason. 6 6 4+2

Dear student, 

Yes, as an entrepreneur we would agree with the statement. 
According to the MR-MC approach, a producer's profits are maximised at the point where the following two conditions are:
  • MR is equal to MC
  • MC is rising at the point of intersection
However, it may happen that at the point where the two conditions of equilibrium are met the price prevailing is too low such that the firm is able to cover only the variable cost and not the total cost. In such a situation the firm is incurring losses even when it is at equilibrium. 

Thus, we can say that maximisation of profits implies equilibrium but equilibrium does not always imply profit maximisation. 

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