Question

1. From the following schedule, find out the level of output at which the producer is in equilibrium, using
marginal cost and marginal revenue approach. Give reasons for your answer,
8
7
6
5
1
Price per unit ()
Output (Units)
Total Cost ()
2
4
20
6
11
15
28​

Answer 1

Answer:

Output (Units) Total Cost (Rs.) Total Revenue (Rs.) Marginal Cost (Rs.) Marginal Revenue (Rs.)

1

2

3

4

5 9

17

24

29

36 11

20

27

32

35 9

8

7

5

7 11

9

7

5

3

Producer is in equilibrium at 4th unit of output.

A producer strikes equilibrium when two conditions are satisfied:

(i) MR=MC, and

(ii) MC is rising from the point of equilibrium (so that MC is greater than MR beyond the equilibrium output).

Condition 1 is satisfied in two situations: (1) when 3 units of output are produced, and (2) when 4 units of output are produced. But situation (1) does not satisfy condition 2 (that MC should be rising from the point of equilibrium). However, both the conditions of equilibrium are satisfied in situation (2). Hence, equilibrium is struck when 4 units of output are produced.