A producer is said to be in equilibrium when he maximises his profits or minimises his losses.
There are two conditions of producer'* equilibrium :
(i) MC=MR
(ii) MC is greater than MR after equilibrium
The conditions are fulfilled at point E in the diagram
Explanation :
(i) So long as MC is less than MR, it is profitable for the producer to go on producing more because it adds to profits. He stops producing more when MC becomes equal to MR.
(ii) When MC is greater than MR after equilibrium it means producing more will lead to a decline in profits.
