Explain the condition of producer's equilibrium with the help of a numerical example. Use Marginal Cost and Marginal Revenue approach.
Explain the condition of producer's equilibrium with the help of a numerical example. Use Marginal Cost and Marginal Revenue approach.
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| Output (Units) | MR (in Rs.) | MC (in Rs.) |
| 1
2 3 |
10
10 10 |
12
10 9 |
| 4 | 10 | 10 |
| 5 | 10 | 13 |
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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