Page 3 - H. A Producer's equilibrium

Producer’s Equilibrium is determined at OQ level of output corresponding to point E
as at this point, MC = MR and MC curve cuts MR curve from below.

In Figure, output is shown on the horizontal axis and revenue and costs on the
vertical axis. Producer’s equilibrium will be determined at OQ level of output g
corresponding to point E because at this, the following two conditions are met: OQ
Units Sold

(a) MC = M, and (b) MC curve cuts the MR curve from below.
When MR > MC, then producer will continue to produce as long as MR becomes
equal to MC. It is so because firm will find it profitable to raise the output level.
When MR < MC, then producer will cut down the production as long as MR becomes
equal to MC. It is so because firm will find it Unprofitable to produce an extra unit.

So, it starts reducing the level of output till MR = MC.

So, the producer is at equilibrium at OQ units of output.

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