question_answer

                                                          From the table given below, determine the level of output at which the producer is in equilibrium. Use the Marginal Revenue (MR) and Marginal Cost (MC) approach. Give reasons for your answer.  

Output(Units)	Price(Rs)	TotalCost(TC)(Rs)
1	5	7
2	5	12
3	5	16
4	5	18
5	5	23

Answer:

                            Producer's equilibrium is that point at which a producer is getting maximum profit and he has no tendency to change his output. When Marginal Revenue (MR) is equal to Marginal Cost (MC) and marginal cost rising beyond the point of equilibrium, at that point, the producer earns maximum profits.                 

Output (Units)	Price=AR (Rs)	TR (Rs)	TC (Rs)	MR (Rs)	MC (Rs)	Profit\[\pi \]=TR-TC (Rs)
1	5	5	7	5	7	-2
2	5	5	12	5	7	-2
3	5	10	16	5	4	-1
4	5	20	18	5	2	2
5	5	25	23	5	5	2

Accordingly, producer's equilibrium is struck at 5th unit of output because at output level of 2 and 5 unit both MR and MC are equal, which is equal to 5 in both the cases. But the producer is in equilibrium at 5th unit only where profit is maximum, i.e. 2. Also, beyond this level, Marginal Cost tends to rise.                          Formulae Used                                                                Total Revenue (TR) = Price (P)   Quantity (Q)                                            Marginal Revenue (MR) =\[T{{R}_{N}}-T{{R}_{N-1}}\]                                           Marginal Cost (MC) =\[T{{C}_{N}}-T{{C}_{N-1}}\]