Question

From the following total cost and total revenue schedule of a firm, find out the level of output, using marginal cost and marginal revenue approach, at which the firm would be in equilibrium. Give reasons for your answer.

| Output (units) | Total Revenue (In Rs.) | Total cost (In Rs.) |
| 1 | 10 | 8 |
| 2 | 18 | 15 |
| 3 | 24 | 21 |
| 4 | 28 | 25 |
| 5 | 30 | 33 |

Answer 1

'The equilibrium level of output wiil be 4 units. This is because at this point the two conditions of equilibrium (using MR-MC approach are met . This can be seen as follows :

we are giver-r the Tctal Revenue (TR) and Total Cost. From here, we can find Marginal Revenue (MR) and Marginal Cost (MC), as given in the foilowing schedule :

| Output (units) | Total Revenue (In Rs.) | Marginal Revenue (MR) | Total cost (In Rs.) | Marginal Cost (MC) |
| 1 | 10 | - | 8 | 8 |
| 2 | 18 | 9 | 15 | 7 |
| 3 | 24 | 8 | 21 | 6 |
| 4 | 28 | 4 | 25 | 4 |
| 5 | 30 | 2 | 33 | 8 |

Here, as we can see, the conditions of equilibrium through MR-MC approach are being met at unit 4' That is,First Condition: MR=MC=4Second condition: MC is rising from this point and meets MR from below.Thus, equilibrium output is 4 units