Question

From the following table find out the level of output at which the producer will be in equilibrium (use marginal cost and marginal revenue approach). Give reasons for Your answer

| Output (units) | 1 | 2 | 3 | 4 | 5 |
| Total Revenue in Rs. | 16 | 30 | 42 | 52 | 60 |
| Total Cost in Rs. | 14 | 27 | 39 | 49 | 61 |

Answer 1

The equilibrium level of output will 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 given. tire Total Revenue (TR) and Total Cost. From here, we can find Marginal Revenue (MR) and Marginal Cost (MC), as given in the following schedule :

| Units | Total Revenue(TR) | Matginal Revenue (MR) | Total Cost(TC) | Marginal Cost(MC) |
| 1 | 16 | - | 14 | - |
| 2 | 30 | 14 | 27 | 13 |
| 3 | 42 | 12 | 39 | 12 |
| 4 | 52 | 10 | 49 | 10 |
| 5 | 60 | 8 | 61 | 12 |

Here, as we can see, the first and the order condition of equilibrium through MR-MC approach are being met at unit 4. That is,

First Condition: MR=MC=10 Second Condition: MC is rising from this point and meets MR from below. Thus, equilibrium output is 4 units.