Question

Given below is a cost and revenue schedule of a producer. At what level of output is the producer in
equilibrium? Give reasons for your answer.
Quantity sold 1,2,3,4,5
Price (Rs.)
15,16,17,18,19
Total Cost (Rs.)
14,24,30,51,75​

Answer 1

When the quantity of output sold is 1,the total profit for each unit of output is maximized and the firm or producer is at equilibrium.

Explanation:

The various output price levels and the respective total cost schedule are given in the question.Note that as the output level and the price of each unit of output expands,the total cost of production also increases.Now,in this case the price of each unit of output represents the total revenue obtained by the firm from the sale of each unit and the difference between the unit price of the output and the total cost of production at each level of output denotes the per unit output profit of the firm or company.Notice that at the first unit of output sold or when the quantity of output sold is 1,the per unit output profit of the firm is maximized as the difference between the price and the total cost is maximum at that particular level $(15-14)$.At all the other levels of output,observe that the firm is experience negative per unit of output profit or loss from the sale of each unit of output and the loss is increasing as the firm sells more output.Therefore,when the output level sold is 1,the firm's total profit for each unit of output is maximized and the firm is at equilibrium.