What is producer's equilibrium? Explain the conditions of producer's equilibrium through the 'marginal cost and marginal revenue' approach. Use diagram/schedule.

Solution

Producer's equilibrium refer's to the stage under which with the help of given factor's of production producer attain the level of production at which he is getting maximum profit. The conditions of producer's equilibrium through the marginal cost and marginal revenue approach are as follows.

Marginal cost should be equal to marginal revenue.
With the increase in output after equilibrium marginal cost should be greater than marginal revenue.

Output (units)	MR (Rs.)	MC (Rs.)
1	4	5
2	4	4
3	4	3
4	4	4
5	4	5

Output (Units)	MR (Rs.)	MC (Rs.)
1	10	5
2	8	4
3	6	3
4	4	4
5	2	5

Diagrammatically,

Explanation of Conditions:

So longs as MC is less than MR, it is profitable for the producer to go on producing more because it adds to its profits. He stops producing more when MC becomes equal to MR.
When MC is greater than MR after equilibrium it means the profit will decline if the producer will produce more units of the good.

Some More Questions From The Theory Of The Firm Under Perfect Competition Chapter

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The Theory Of The Firm Under Perfect Competition

What is producer's equilibrium? Explain the conditions of producer's equilibrium through the 'marginal cost and marginal revenue' approach. Use diagram/schedule.

Some More Questions From The Theory Of The Firm Under Perfect Competition Chapter

Name the market structure in which firm is itself an industry.

Define the term market as used in economics.

What is meant by monopolistic competition?

What are selling costs?

Define homogeneous product.

What is meant by differentiated product?

Define perfect competition.

Is the seller under perfect competition a price maker or a price taker?

Define monopoly.

Define market equilibrium.

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