Question

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

Answer 1

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.