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On the basis of the information given below, determine the level of output at which the producer will be in equilibrium. Use the marginal cost - marginal revenue approach. Give reasons for your answer.

$\begin{matrix} Output (Units) & Average Revenue (Rs) & Total Cost (Rs.) 1 & 7 & 8 2 & 7 & 15 3 & 7 & 21 4 & 7 & 26 5 & 7 & 33 6 & 7 & 41 \end{matrix}$

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Solution

$\begin{matrix} Output (Units) & AR (Rs) & TC (Rs) & MC (Rs) & MR (Rs) 1 & 7 & 8 & 8 & 7 2 & 7 & 15 & 7 & 7 3 & 7 & 21 & 6 & 7 4 & 7 & 26 & 5 & 7 5 & 7 & 33 & 7 & 7 & Equilibrium 6 & 7 & 41 & 8 & 7 & 1 \end{matrix}$

The producer achievers equilibrium at 5 units of output. It is because this level of output satisfies both the conditions of producer's equilibrium : 1

(i) Marginal cost is equal to marginal revenue. 1

(ii) Marginal cost becomes greater than MR after this level of output. 11, also because Ar is constant MR=AR

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Q. 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.

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