Question

Answer the following question.
Explain the conditions of the producer's equilibrium with the help of a numerical example. Use marginal cost and marginal revenue approach.

Answer 1

Under Perfect Competition Market, a producer attains equilibrium when the following conditions are met.

1. Price (MR) = MC
2. MC is rising or the slope of the MC curve is greater than the slope of the MR curve at subsequent output levels beyond the point where MC = MR

This can be understood using the below example,

Suppose, we are given the following schedule where we have units of a commodity and the Marginal Cost of every unit, and we are given that the market price of units is Rs 11.Thus, Marginal Revenue (MR) = 11.

Units	Marginal Cost (MC)
1	11
2	9
3	7
4	11
5	12
6	14

Here, as we can see, the first and the order conditions are being met at unit 4. That is,
First Condition: MR = MC = 11
Second Condition: MC is rising and meets MR from below.
Thus, the equilibrium output will be 4 units as per the marginal cost and marginal revenue approach.