1.

Explain the condition of producer's equilibrium with the help of a numerical example. Use Marginal Cost and Marginal Revenue approach.

Answer»
Output (Units)MR (in Rs.)MC (in Rs.)
1
2
3		10
10
10		12
10
9
41010
51013

Producer's equilibrium refers to a situation, where a producer is producing that level of output, at which its profits are maximum. In other words, it is a situation of profit maximization.

Following are the two conditions of producer's equilibrium:

(i) MR = MC

(ii) MC must be rising at the point of equilibrium or MC curve must cut MR curve from below:

These conditions are satisfied when 4 units of output are produced in the given schedule.


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