Question

Given below is the cost schedule of a product produced by a firm. The market price per unit of the product at all levels of output is $Rs.12$. Using marginal cost and marginal revenue approach, find out the level of equilibrium output. Give reasons for your answer:

Output (Units)	$1$	$2$	$3$	$4$	$5$	$6$
Average Cost (Rs.)	$12$	$11$	$10$	$20$	$10.4$	$11$

Answer 1

Output (Units)	Average Cost (Rs.)	Total Cost (Rs.)	Marginal Revenue $=$ Average Revenue (Rs.)	Marginal Cost (Rs.)
$1$ $2$ $3$ $4$ $5$ $6$	$12$ $11$ $10$ $10$ $10.4$ $11$	$12$ $22$ $30$ $40$ $52$ $66$	$12$ $12$ $12$ $12$ $12$ $12$	$12$ $10$ $8$ $10$ $12$ $14$

Producer is in equilibrium at $5th$ unit of output.
Reason: At output levels $1st$ and $5th$ unit, $MR$ and $MC$ are equal which is $12$ in this case. But the producer is in equilibrium at $5th$ unit only where $MR=MC(=12)$ and $MC$ is rising.
The level of equilibrium output is $5th$ unit.