question_answer

From the following data find out the level of output that will give the producer maximum profit (use marginal cost and marginal revenue approach). Give reasons for your answer.
Output (units)	1	2	3	4	5
Total Cost (Rs.)	9	17	24	29	36
Total Revenue (Rs.)	11	20	27	32	35

Answer:

Output (Units)	Total cost (Rs.)	Total Revenue (Rs.)	MC (Rs.)	MR (Rs.)	Profit (TR?TC)	Remarks
1	9	11	9	11	2
2	17	20	8	9	3
3	24	27	7	7	3
4	29	32	5	5	3	Equilibrium point
5	36	35	7	3	\[1\]
The producer will get the maximum profit at the point where firm is in equilibrium. From the above data it is clear that firm is in equilibrium at unit 4 where, MC=MR. i.e. 5. 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 be rising just after the equilibrium point. 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.