Question

Choose : (True/False) Producer's Equilibrium is determined when Marginal Cost equals to Marginal Revenue and Marginal Cost Curve cut Marginal Revenue Curve from below.

Hint:

If MC cuts MR from above, it's a point of minimum profit, not equilibrium! Always look for MC rising at the equilibrium point.

Answer 1

Step 1: Understanding the Concept:
Producer's Equilibrium is the output level where a firm earns maximum profit or incurs minimum loss. The MC-MR approach is the standard method to determine this.
Step 2: Detailed Explanation:
There are two conditions for Producer's Equilibrium:
1. First Condition (\( MC = MR \)): At this point, the revenue from the last unit equals the cost of producing it. However, this could happen at two points (one where MC is falling and one where MC is rising).
2. Second Condition (\( MC \) cuts \( MR \) from below): This means after the point of equality, Marginal Cost must be greater than Marginal Revenue (\( MC>MR \)). This ensures that producing any more units would reduce total profit.
Step 3: Final Answer:
The statement correctly lists both the necessary and sufficient conditions for equilibrium. Thus, it is True.