From the following information about a firm, find the firm's equilibrium output in terms of marginal cost and marginal revenue. Give reasons. Also, find profit at this output.
|Output (units)||Total Revenue
|Total Cost (Rs)|
(TR − TC)
According to the MR–MC approach, the firm reaches equilibrium only when the following conditions are satisfied:
i. MR = MC
ii. MC must be rising after the equilibrium level of output
The firm is in equilibrium at the output level of 4 units, and MC increases after the 4th unit of output. Thus, the firm’s equilibrium level of output to maximise output is MR = MC and MC should be rising at the point of intersection with MR. If there is a decline in the level of output, then the price will exceed the marginal cost. Hence, the firm should increase output to earn high profit. The firm reaches equilibrium only when it produces 4 units of output.