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Question
Illustrate the concept of Producer’s Equilibrium.
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Solution
Producer equilibrium is the situation where the producer maximizes his output. It is also known as the optimum combination of the factors of production.
(Eg.) Maximum output at minimum cost.
Producer attains equilibrium where the Iso-cost line is tangent to the Iso-quant.
In the figure profit of the firm is maximized at the point of equilibrium.
At the point of equilibrium slope of the Iso-cost line = Slope of Iso-product curve At the point E, the firm employs OM units of labour and ON units of capital which is the least cost combination.
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