Question

Using your judgement as an entrepreneur, would you agree with the following statement?
"Maximisation of profit implies equilibrium, but equilibrium does not always imply maximisation of profit".

Answer 1

Yes, we do agree with the statement that maximisation of profit implies equilibrium, but equilibrium does not always imply maximisation of profit. Profit is maximised when the difference between total revenue and total cost is maximum. But equilibrium can be struck even in the state of losses, when the two conditions are satisfied, i.e., (i) $MR=MC$ and (ii) $MC$ is rising. Fig. illustrates it.
Note : It is a situation of low price prevailing in the market when the firm is covering variable cost, but not the total cost.