Answer:
Meaning of Producer?s equilibrium - A producer is said to be in equilibrium at that level of output which gives him maximum profit and he has no incentive to increase or decrease further. A producer attains equilibrium when following two conditions are fulfilled simultaneously.
(i) MC = MR (It is expressed as P = MC under perfect competition)
(ii) MC is greater than MR after MC = MR output level or MC curve cuts MR curve from below.
It can be explained with the help of schedule and its graph.
Units sold
MR (Rs.)
MC (Rs.)
1
10
8
2
10
10
3
10
8
4
10
10
5
10
12
In the above schedule Price (P) is constant and P = AR = MR. In the above schedule. Condition 1 is satisfied initially at 2 level of units but the second condition is not satisfied thereafter since MC is below than. MR at the next level so, producer is not in equilibrium.
Again at unit 4 MR = MC and MC is greater than
MR thereafter so, producer will be in equilibrium at unit 4.
The situation is also shown in the graph. Under perfect competition. Price line is parallel to X-axis because it is constant and therefore. P = AR = MR MC curve is as usual V- shaped which interest MR (price) curve at two points A and B. it means MR = MC at two places. But point B is only satisfying both the conditions essential for equilibrium, hence producer will be in equilibrium at B.
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