Topics
Microeconomic Theory
Demand
- Introduction to Microeconomics and Macroeconomics
- Microeconomics
- Macroeconomics
- Macroeconomics Vs Microeconomics
- Introduction to Demand
- Meaning of Demand
- Features of Demand
- Types of Demand
- Determinants of Demand
- Demand Function
- Quantity Demanded and Demand
- Law of Demand
- Demand Schedule
- Demand Curve
- Individual Demand Curve to Market Demand Curve
- Slope of the Demand Curve
- Linear Demand Curve
- Reasons for the Downward Slope of the Demand Curve
- Importance of the Law of Demand
- Exceptions to the Law of Demand
- Movement Along the Demand Curve
- Change in Demand – Shift in Demand Curve
- Difference Between Extension and Increase in Demand
- Difference Between Contraction and Decrease in Demand
- Cross Price Effects
- Relationship Between Income and Demand
- Impact of Tastes and Preferences on Demand for a Commodity
- Industry Demand Vs Firm Demand
- Concept of Utility
- Cardinal Utility Analysis / Marginal Utility Analysis
- Types of Marginal Utility
- Total Utility and Marginal Utility
- Forms of Utility
- Features of Utility
- Relationship Between Total Utility and Marginal Utility
- Law of Diminishing Marginal Utility
- Exceptions of the Law of Diminishing Marginal Utility
- Importance of the Law of Diminishing Marginal Utility
- Consumer's Equilibrium through Cardinal Utility Approach
- Law of Equi-Marginal Utility
- Exceptions of the Law of Equi-marginal Utility
- Importance of the Law of Equi-marginal Utility
- Ordinal Utility Analysis/Indifference Curve Analysis
- Indifference Schedule
- Indifference Curve
- Indifference Map
- Marginal Rate of Substitution (MRS)
- Assumptions of Indifference Curve Analysis
- Properties of Indifference Curves
- Price Line or Budget Line
- Consumer's Equilibrium through Indifference Curve Approach
- Comparison of Utility Theory and Indifference Curve Theory
- Consumer's Equilibrium through Indifference Curve Approach
- Relationship Between Marginal Rate of Substitution and Marginal Utility
Theory of Income and Employment
Elasticity of Demand
- Introduction to Elasticity of Demand
- Meaning and Types of Elasticity of Demand
- Price Elasticity of Demand
- Classification of Price Elasticity - Degrees of Price Elasticity of Demand
- Methods of Measuring Price Elasticity of Demand
- Percentage or Proportionate Method
- Total Expenditure Method
- Point Method (Geometric Method)
- Arc Elasticity of Demand
- Revenue Method
- Numerical Problems of Price Elasticity of Demand
- Factors Affecting Price Elasticity of Demand
- Importance of Elasticity of Demand
- Income Elasticity of Demand
- Types of Income Elasticity of Demand
- Importance of Income Elasticity
- Cross Elasticity of Demand
- Туpes of Cross Elasticity of Demand
- Limitations of Cross Elasticity of Demand
- Importance of Cross Elasticity of Demand
Supply
- Concept of Supply
- Individual and Market Supply
- Distinction Between Supply and Stock
- Determinants of Supply
- Supply Function
- Law of Supply
- Supply Schedule
- Supply Curve
- Derivation of Market Supply Curve From Individual Supply Curves
- Explanation of the Law of Supply
- Time Period and Supply
- Exceptions to the Law of Supply
- Movement Along the Supply Curve Or Expansion and Contraction of Supply
- Shift of the Supply Curve or Change in Supply
- Expansion of Supply and Increase in Supply
- Contraction of Supply and Decrease in Supply
- Elasticity of Supply
- Meaning and Types of Elasticity of Demand
- Price Elasticity of Supply
- Categories (Degrees) of Elasticity of Supply
- Measurement of Elasticity of Supply > Percentage Method
- Measurement of Elasticity of Supply > Geometric or Point Method
- Determinants of Elasticity of Supply
- Importance of Elasticity of Supply
Money and Banking
Balance of Payments and Exchange Rate
Market Mechanism
- Introduction to Market Mechanism
- Basic Concepts of Equilibrium and Equilibrium Price
- Equilibrium Price and Quantity in a Competitive Market
- Changes in Equilibrium
- Effects of Changes (Shifts) in Demand on Equilibrium Price and Equilibrium Quantity
- Effects of Changes (Shifts) in Supply on Equilibrium Price and Equilibrium Quantity
- Effects of Simultaneous Changes (Shifts) in Demand and Supply
- Some Special Cases of Equilibrium
- Importance of the Element in the Determination of Price
- Applications of Tools of Demand and Supply Price Control
- Mаximum Price Legislation or Price Ceiling and Rationing
- Minimum Price Legislation or Floor Price
- Important Areas of Applications of Tools of Demand and Supply Curves
- Meaning of Perfect Competition
- Assumptions and Conditions of Perfect Competition
- Pure and Perfect Competition
- Time Element in the Theory of Price Determination
- Determination of Equilibrium Prices
- Normal Price and Law of Returns
- Comparison between Market Price and Normal Price
- Practical Applications of Tools of Demand and Supply Analysis
Public Finance
Concepts of Production
- Concept of Production
- Product
- Factors of Production
- Production Function
- Short-run and Long-run
- Features of Production Function
- Types of Production Functions
- Some Basic Concepts - Total, Average and Marginal Physical Products
- Relationship between Average Product (AP) and Marginal Product (MP)
- Relationship between Total Product (TP) and Marginal Product (MP)
- Returns to a Factor - Laws of Returns to a Variable Factor
- Law of Variable Proportions
- Statement of the Law of Variable Proportions
- Assumptions of the Law of Variable Proportions
- Illustration of the Law of Variable Proportions
- Three Stages of Production
- Explanation of the Law of Variable Proportions
- Stages of Operation and the Decision to Produce
- Conditions Or Causes of Applicability
- Applicability of the Law of Variable Proportions
- Changes in Production
- Returns to a Factor or Law of Returns
- Law of Variable Proportions and Returns to Scale Compared
- Variation of Output in the Long Run - Returns to Scale
- Scale of Production
- Concept of Indivisibility
- Economies of Scale
- Diseconomies of Scale
National Income
Cost and Revenue
- Introduction to Cost of Production
- Money Cost Or Accounting Cost / Explicit Cost
- Economic Cost
- Opportunity Cost
- Real Cost
- Private and Social Cost
- Fixed Cost and Variable Cost
- Different Cost Concepts
- Total Cost Curves
- Average Cost Curves
- Marginal Cost (MC)
- Relationship between Average and Marginal Cost
- Long-Run Cost Curves
- Long-run Average Cost (LAC) Curve
- Long-run Marginal Cost (LMC) Curve
- LAC Curve U-shaped - Economies and Diseconomies of Scale
- Numerical Problems Long-run Cost Curves
- Revenue Concepts
- Behaviour of Revenue Under Different Market Structures
- Relationship Between Total, Average and Marginal Revenues Under Perfect Competition
- Relationship Between Total, Average and Marginal Revenue Under Imperfect Competition
- Significance of Revenue Curve
- Numerical Problems of Revenue
Main Market Forms and Equilibrium of a Firm
- Concept of Market
- Market Structure
- Factors Determining Market Forms
- Perfect Competition
- Features of Perfect Competition
- Pure and Perfect Competition
- Monopoly
- Features of Monopoly
- Monopolistic Competition
- Features of Monopolistic Competition
- Oligopoly
- Features of Oligopoly
- Monopsony
- Features of Monopsony
- Duopoly
- Characteristics of Duopoly
- Bilateral Monopoly
- Other Forms of Market
- Factors Determining Market / Extent of Market
- Demand Curves of Firms under Different Market Forms
- Comparison between different forms of market
- Difference Between Imperfect Competition and Monopolistic Competition
- Firm : An Economic Entity
- Profit Maximisation Objective
- The Definition of Profits
- Rules for Profit-Maximisation
- Producer's (Firm's) Equilibrium: Total Revenue and Total Cost Approach
- Producer's (Firm's) Equilibrium: Marginal Revenue and Marginal Cost Approach
- Short-run Equilibrium
- Long-run Equilibrium
- Firm is a Price Taker, Not a Price Maker
- Equilibrium of Industry
- Difference Between Firm and Industry's Equilibrium
- Meaning of a Producer
- Producer's Equilibrium under Perfect Competition
- Determination of Price and Equilibrium Under Monopoly
- Monopoly Equilibrium and Laws of Costs
- Price Discrimination or Discriminating Monopoly
- Price and Output Discrimination Under Discriminating Monopoly
- Measures of Monopoly Power
- Nature of Demand and Cost Curves
- Equilibrium Price and Output under Monopolistic Competition
- Group Equilibrium in Monopolistic Competition
- Product Differentiation
- Selling Costs
- Equilibrium with Selling Costs
- Price and Output Under Oligopoly Indeterminate
- Price and Output Determination under Oligopoly
- Price Rigidity-Sweezy's Kinky Demand Curve Model or Equilibrium under Independent Action
- Reasons for Price Stability
- Cournot's Model
- Collusive Oligopoly
- Mergers
- Introduction
- Numerical illustration of TVC and MC
- Diagram: TVC as area under MC
- U-Shaped Nature of the Marginal Cost Curve
- Perfect competition and revenue curves
- Conditions of producer’s equilibrium
- Key Points: Producer's Equilibrium under Perfect Competition
CISCE: Class 12
Introduction
- Producer’s equilibrium is the level of output at which the firm maximises its profit.
- Under perfect competition, the firm is a price taker; its price, average revenue (AR) and marginal revenue (MR) are equal and constant.
- The firm’s equilibrium output is where MR = MC and MC is rising.
- Total variable cost (TVC) is the sum of marginal costs (MC) of all units produced.
CISCE: Class 12
Numerical illustration of TVC and MC
Consider the following (illustrative) cost schedule:
| Output (units) | TVC (₹) | MC (₹) = TVCₙ − TVCₙ₋₁ |
|---|---|---|
| 0 | 0 | – |
| 1 | 20 | 20 − 0 = 20 |
| 2 | 40 | 40 − 20 = 20 |
| 3 | 55 | 55 − 40 = 15 |
| 4 | 80 | 80 − 55 = 25 |
- TVC at 4 units of output = 80.
- Sum of MC for 1 to 4 units = 20 + 20 + 15 + 25 = 80.
- Therefore:
TVC = ∑MC
(from the first unit up to the given level of output).
CISCE: Class 12
Diagram: TVC as area under MC
- X-axis: Output (O to L).
- Y-axis: Cost.
- Draw a U-shaped MC curve:
(i) Initially downward sloping (MC falling).
(ii) Then bottoming out (MC at minimum).
(iii) Finally, upward sloping (MC rising). - Shade the area under the MC curve from O to L units of output.
- Label the area OLSK as TVC.
Key point:
-
TVC is equal to the sum of marginal costs of all units produced, which is represented by the area under the MC curve between O and L.
CISCE: Class 12
U-Shaped Nature of the Marginal Cost Curve
Due to the law of variable proportions:
- At first, when a variable factor (like labour) is increased with a fixed factor (like machinery), the firm uses resources more efficiently. Output rises more than proportionately, so marginal cost falls.
- After a certain point, too much of the variable factor with the same fixed factor leads to overcrowding, pressure on machines, and inefficiency. Output from each extra unit of input rises less and finally falls, so marginal cost rises.
Therefore, MC curve first falls, then remains roughly constant, and finally rises, giving it a U-shape.
This shape results from production technology and is common in all market forms (perfect competition, monopoly, etc.).
CISCE: Class 12
Perfect competition and revenue curves
Under perfect competition:
- A firm is a price taker. It accepts the market price determined by the industry where market demand equals market supply.
- Price (P) remains constant for the firm, whatever quantity it sells.
Therefore, for an individual firm:
P = AR = MR
and the AR and MR curves are horizontal straight lines at the level of the market price.
CISCE: Class 12
Conditions of producer’s equilibrium
A firm reaches equilibrium (profit is maximised) when both of these conditions are satisfied:
- First condition: MR = MC
- Second condition: MC is rising at the point of equality
CISCE: Class 12
Key Points: Producer's Equilibrium under Perfect Competition
- TVC is the sum of marginal costs of all units produced; graphically, it is the area under the MC curve between the origin and the chosen output.
- The MC curve is U-shaped due to the law of variable proportions (initial increasing returns followed by diminishing returns).
- Under perfect competition, the firm is a price taker; hence P = AR = MR and the MR curve is horizontal.
- Producer’s equilibrium (profit-maximising output) is attained where:
MR = MC, and
MC is rising and cuts MR from below. - At this equilibrium output, the difference between total revenue and total cost (profit) is maximum, and the firm has no incentive to change its level of output.
