Figure 3: The "Tangency" Equilibrium for a Chamberlin-Robinson Competitor

The graph has quantity on the x-axis and price on the y-axis. Average cost (AC) is a u-shaped curve. Marginal cost (MC) is an increasing convex curve that intersects the average cost curve at the minimum average cost. A downward sloping demand curve is a line tangent to the average cost curve when average cost is decreasing. The marginal revenue curve corresponding to the demand curve is a line with the same y-intercept as the demand curve but twice its slope. The equilibrium occurs where demand is tangent to the average cost curve. At this tangency, the price is P subscript C-R and the quantity is Q subscript C-R.

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