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From the Following Information About a Firm, Find the Firms Equilibrium Output in Terms of Marginal Cost and Marginal Revenue. Give Reasons. Also Find Profit at this Output - Economics

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From the following information about a firm, find the firms equilibrium output in terms of marginal cost and marginal revenue. Give reasons. Also find profit at this output

Output (units) Total Revenue (Rs) Total Cost (Rs)
1 7 8
2 14 15
3 21 21
4 28 28
5 35 36

 

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Solution

Output
(units)
Total
Revenue (Rs)
Total
Cost
(Rs)
Marginal
Revenue
(Rs)
Marginal
Cost (Rs)
Profits
(TR − TC)
1 7 8 - - -1
2 14 15 7 7 -1
3 21 21 7 6 0
4 28 28 7 7 0
5 35 36 7 8 -1

The producer’s equilibrium refers to the situation in which he maximises his profits. A producer strikes equilibrium when two conditions are satisfied:

i. MR = MC

ii. MC is rising or the MC curve cuts the MR curve from below.

The table indicates that the two conditions of equilibrium are satisfied only when 4 units of output are produced. It is here that (i) MR = MC = Rs 7 and (ii) MC is rising.

Concept: Concept of Producer's Equilibrium
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