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)	$1$	$2$	$3$	$4$	$5$
Total Revenue (Rs.)	$16$	$30$	$42$	$52$	$60$
Total Cost (Rs.)	$14$	$27$	$39$	$49$	$61$

Answer 1

Output (Units)	Total Revenue (Rs.)	Total Cost (Rs.)	Marginal Revenue (Rs.)	Marginal Cost (Rs.)
$1$ $2$ $3$ $4$ $5$	$16$ $30$ $42$ $52$ $60$	$14$ $27$ $39$ $49$ $61$	$16$ $14$ $12$ $10$ $8$	$14$ $13$ $12$ $10$ $12$

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.