*The two conditions of producer’ equilibrium are:**
(i) Marginal Cost should be equal to Marginal Revenue (MC = MR)
(ii) Marginal Cost should be rising at the point of equilibrium.
| Output | Marginal Revenue (MR) ( in Rs.) | | Marginal Cost (MC (in Rs. ) |
| 1 | 20 | < | 14 |
| 2 | 10 | < | 10 |
| 3 | 6 | < | 7 |
| 4 | 4 | = | 4 |
| 5 | 2 | < | 6 |
Producer will be at equilibrium, producing 4th units of output because it satisfies both the conditions of equilibrium.
(i) If MC is less than MR i.e. at any output level less than 4 units, it is profitable for the producer to produce more units till MC becomes equal to MR.
When MC becomes greater than MR after the MR = MC condition, i.e. at 5th units, production of each additional unit is sold at a loss, which leads to decline in profits for the producer.
