Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

price shown by average revenue is OP. 
Now, when output is OM, the average revenue is QM (i.e. 
equivalent to OP) which shows the extent of average profit. 
Therefore, the product of average profit (QR) and output (OM) 
is the total area of profit. Thus the area PQRS represents the 
maximum profit/supernormal profit which the monopolist derives 
by selling OM output at a higher price OP. 
Conclusion: Hence, the monopolist follows a trial and error 
method for determining his price and output; and finally adjusts 
his price and output in such a way that MR = MC and he derives 
maximum profit. 
4.4 ROLE OF TIME ELEMENT IN PRICE
DETERMINATION 
Alfred Marshall, analysed the equilibrium price determination 
under perfect competition. Time here does not mean calendar 
sense of time. Time refers to the possibility of adjusting the supply 
according to the change in demand. He introduced 3 time periods. 
(i) Market period (ii) Short period and (iii) Long period, 
(i) Market period: Market period is that period in which supply 
can be adjusted only to the given stock. No production is possible 
in market period. Usually the market supply curve for perishable 
commodity will be parallel to Y-axis (MS). The Elasticity of supply 
will be zero. Even if the price increases or decreases to the sale 
quantity will be supplied in the market period. 

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Figure 4.5 
 
 
(ii) Short period: It is the period in which supply can be 
adjusted to the demand to some extent. The supply can be in- 
creased or decreased by changing the variable factors of produc- 
tion. Supply can be adjusted by increasing or decreasing the 
production. Variable cost is very important in the short period. 
Since only a very small adjustment is possible in the short period 
supply, the supply curve will be steeper indicating less elastic 
supply (SS).