question_answer

Explain the conditions of producer's equilibrium with the help of a numerical example.

Answer:

Producers equilibrium refers to a combination of price and quantity of output which yields the producer the maximum profit. For achieving this combination two conditions need to be fulfilled.
(i) The difference between total cost and total revenue must be the maximum.
(ii) At the point where, the difference between TIC and TR is maximum, MR and MC should also be equal. Any departure from this position will not ensure maximum profit.
In the Table, the difference between TR and TC is maximum at 3 units as well as at 4 units but the point of equilibrium is 4 units because at this point MC = MR.  & MC must rise.
These two conditions can be explained with the help of a table given below:
Price (Rs)	Output (Units)	TR (Rs)	TC (Rs)	MC (Rs)	MR (Rs)	Profit (TR=TC)
10	1	10	10	10	10	0
10	2	20	18	8	10	2	MC = MR
10	3	30	24	6	10	6	MC < MR
10	4	40	34	10	10	6	Equilibrium
10	5	50	46	12	10	4	MC > MR