From the following table, find out the level of output at which the producer will be in equilibrium. Give reasons for your answer. | ||
Output (units) | Marginal Revenue (Rs.) | Marginal Cost (Rs.) |
1 | 8 | 10 |
2 | 8 | 8 |
3 | 8 | 7 |
4 | 8 | 8 |
5 | 8 | 9 |
Answer:
Output Marginal Revenue (in Rs.) Marginal Cost (in Rs.) 1 8 10 \[\] 8 8 3 8 7 \[\] 8 8 5 8 9 We know that the producer attains equilibrium when the following two conditions are accomplished. (i) MR = MC (ii) MC is rising As we can see in the given schedule, the first condition is being met in two cases. That is at point A and B, MR = MC = 8. However, the second condition is being met only at point B. That is, in contrast to A where MC is falling from 8 to 7, the MC is rising from 8 to 9 point B. Thus, the producer equilibrium will be at point B or at 4 unit?s output level.
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