From the following table find out the level of output at which the producer will be in equilibrium (use marginal cost and marginal revenue approach).Give reasons for your answer.
| Output (Units) |
Total Revenue (Rs ) |
Total Cost (Rs ) |
| 1 | 16 | 14 |
| 2 | 30 | 27 |
| 3 | 42 | 39 |
| 4 | 52 | 49 |
| 5 | 60 | 61 |
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Solution
| Output (Units) |
Total Revenue (Rs) |
Total Cost (Rs) |
MR = TRn - TRn-1 | MC = TCn- TCn-1 |
| 1 | 16 | 14 | 16 | 14 |
| 2 | 30 | 27 | 14 | 13 |
| 3 | 42 | 39 | 12 | 12 |
| 4 | 52 | 49 | 10 | 10 |
| 5 | 60 | 61 | 8 | 12 |
The firm would be in equilibrium when following two conditions are satisfied:
1) MR = MC
2) MC is rising or the MC curve cuts the MR curve from below.
Thus, at 4 units of output, the firm is in equilibrium as both the conditions are getting satisfied at this level.
Concept: Basic Concepts of Cost
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