Question

Give reasons to identify the equilibrium level of output and find profit at this output using Marginal Cost and Marginal Revenue approach from the following:

| Output (Units) | 1 | 2 | 3 | 4 | 5 |
| Total Cost (In Rs.) | 14 | 26 | 40 | 56 | 74 |
| Total Revenue (In Rs.) | 14 | 28 | 42 | 56 | 74 |

Answer 1

The producer is in equilibrium at 3 units of output, Because:

(i) MC = MR

(ii) MC > MR beyond equilibrium

Profit π = TR – TC

= 42-40

Profit = Rs.2