Question

Using marginal cost and marginal revenue approach, find out the level of output at which producer will be in equilibrium. Give reasons for your answer.

Output (Units)	$1$	$2$	$3$	$4$	$5$	$6$
Average Revenue (Rs.)	$20$	$20$	$20$	$20$	$20$	$20$
Total Cost (Rs.)	$22$	$42$	$60$	$76$	$96$	$120$

Answer 1

Output (Units)	Average Revenue $=$ Marginal Revenue (Rs.)	Total Cost (Rs.)	Marginal Cost (Rs.)
$1$ $2$ $3$ $4$ $5$ $6$	$20$ $20$ $20$ $20$ $20$ $20$	$22$ $42$ $60$ $76$ $96$ $120$	$22$ $20$ $18$ $16$ $20$ $24$

Producer is in equilibrium at $5th$ unit of output.
Reason: At output levels $2nd$ and $5th$ unit, $MR$ and $MC$ are equal which is $20$ in this case. But the producer is in equilibrium at $5th$ unit only where $MR=MC(=20)$ and $MC$ is rising.
The producer is in equilibrium when $5$ units of output are produced.