Question

When does a firm get the position of equilibrium?

Answer 1

When a company reaches a production level where it maximizes profit and shows no signs of increasing or decreasing, it is considered to be in equilibrium.

Conditions for Equilibrium (MR = MC Approach) 

A firm achieves equilibrium when the following two conditions are satisfied:

1. Marginal Revenue (MR) = Marginal Cost (MC)

   • When the extra money from selling one more unit equals the increased cost of making that unit, the company makes the most money.

2. Marginal Cost curve cuts the MR curve from below

   • This guarantees that if the company continues to produce after this point, MC will surpass MR and profit will begin to decline.

Consequently, when marginal revenue (MR) and marginal cost (MC) are equal, the firm is in equilibrium; as a result, the marginal cost rises.