iii. Beyond OQ_{cuatro} or point R_{step one}, the TC again exceeds the TR and the firm enters in a state of loss again.

iv. Given such behaviour, a profit maximizing situation will be in the output range OQ_{dos} to OQ_{4} or between point R and R_{1}. Profit will be at its maximum where the slope of TC curve equals to slope of TR curve, as per the conditions of equilibrium. As we know, two parallel lines have same slope. Thus, the point at which tangent at TC is parallel to tangent on TR will be the profit maximizing position.

v. To find out such a profit maximizing output level, we draw tangent at each point on TC, as also on TR, between points R and R_{1}. _{1} on TC curve is found to be parallel to tangent at point S on TR curve. As such, the vertical distance between TR and TC curves is at maximum at the output level OQ_{3}. Continue reading “Respond to step 3. Rates and you will Production Decisions under Dominance:”