Question

From the table given below, determine the level of output at which the producer is in equilibrium. Use the marginal revenue and marginal cost approach. Given reasons for your answer.

Output (Units)	Price (Rs.)	Total cost (Rs.)
$1$	$5$	$7$
$2$	$5$	$12$
$3$	$5$	$16$
$4$	$5$	$18$
$5$	$5$	$23$

Answer 1

Output (Units)	Price (Rs.)	Total Revenue $\left(TR\right)(Rs.)$	Total Cost $\left(TC\right)(Rs.)$	Marginal Revenue $\left(MR\right)(Rs.)$	Marginal Cost $\left(MC\right)(Rs.)$	Profit (Rs.) $(\pi =TR-TC)$
$1$	$5$	$5$	$7$	$5$	$7$	$-2$
$2$	$5$	$10$	$12$	$5$	$5$	$-2$
$3$	$5$	$15$	$16$	$5$	$4$	$-1$
$4$	$5$	$20$	$18$	$5$	$2$	$2$
$5$	$5$	$25$	$23$	$5$	$5$	$2$

Producer's equilibrium is struck when output level is $5$ units.
Reason : At output levels $2nd$ and $5th$ units, both $MR$ and $MC$ are equal, which is equal to $5$ in both the cases. But the producer is in equilibrium at $5th$ unit only where profit is maximum $(=2)$.