question_answer

From the following total cost and total revenue schedule of a firm, find out the level of output, using marginal cost and marginal revenue approach, at which the firm would be in equilibrium. Give reasons for your answer.
Output (units)	Total Revenue (Rs.)	Total Cost (Rs.)
1	10	8
2	18	15
3	24	21
4	28	25
5	30	33

Answer:

Output	TR (Rs.)	TC (Rs.)	MR	MC	Remark
1	10	8	10	8
2	18	15	8	7
3	24	21	6	6
4	28	25	4	4	= in equilibrium
5	30	33	2	8
The firm will be in equilibrium at output unit 4, where MC = MR i.e. 4.
At this point the two conditions of MC = MR approach fulfills. These conditions are:
(i) MC should be equal to MR.
(ii) At the point of equilibrium, MC should be rising i.e. MC should rise just after the equilibrium unit.
Both these conditions are fulfilled at output unit 4. Where MC = MR and MC is rising on the next unit than revenue. Hence firm will be in equilibrium at output unit 4.