Question

From the following table, find out the level of output at which the producer will be in equilibrium. Give reasons for your answer.

Output (units)	Marginal Revenue Rs	Marginal Cost Rs
1	8	10
2	8	8
3	8	7
4	8	8
5	8	9

Answer 1

Output	Marginal Revenue	Marginal Cost
1	8	10
2 = A	8	8
3	8	7
4 = B	8	8
5	8	9

We know that the producer attains equilibrium when the following two conditions are accomplished.

(i) MR=MC

(ii) MC should be rising

As we can see in the given schedule, that the first condition is being met in two cases.

That is at point A and B, MR=MC=8.

However, the second condition is being met only at point B. That is, in contrast to A where MC is falling from 8 to 7, the MC is rising from 8 to 9 at point B. Thus, the producer equilibrium will be at point B or at 4 units output level.