*There are two conditions of producer' equilibrium:**
(i) MC = MR
(ii) MC is greater than MR after equilibrium.
The condition are fulfilled at 4 units of output.
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 its 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 decline in profit.
If Such condition is not fulfilled, the optimum point of production hasn't been reached eg. if MC increases while the MR is stable, this means that with every increase in production, the cost of production is increasing. It means the firm is undertaking higher cost of production which it won't be able to cover by the price it will get after selling the product. So obviously this isn't the equilibrium point. On the other hand, when the MC is less than MR, this means that with every increase in production, the cost will fall. A businessman will tend to increase the production till the MC becon.res equal to MR. When MC equals MR, there is no tendency for the production no either increase or decrease. Hence it is the equilibrium point.
