Question

In the given diagram, at which point is producer’s equilibrium achieved? 

• A. K
• B. L
• C. Both (A) and (B)
• D. None of these

Hint:

Producer's equilibrium is achieved when marginal cost (MC) equals marginal revenue (MR). This is the point where the firm maximizes its profit.

Answer 1

The Correct Option is B

Step 1: Understanding Producer’s Equilibrium:
Producer’s equilibrium occurs when a firm maximizes its profit. In perfect competition, this is achieved when marginal cost (MC) is equal to marginal revenue (MR). This is the point at which the firm produces the optimal output level, where it is neither making a loss nor foregoing potential profits.
Step 2: Analyzing the Diagram:
In the given diagram, producer's equilibrium is achieved where marginal cost (MC) intersects marginal revenue (MR), as this is the point where the firm maximizes its profit.
Step 3: Analyzing the Options:
- Option (A) K: This is incorrect. Point K represents a situation where marginal revenue is greater than marginal cost, suggesting the firm should increase output to maximize profit.
- Option (B) L: This is the correct answer. Point L represents the point where MC = MR, which is where the firm achieves producer’s equilibrium.
- Option (C) Both (A) and (B): This is incorrect. Only point L represents producer’s equilibrium.
- Option (D) None of these: This is incorrect because point L is the correct answer.
Step 4: Conclusion and Answer:
The correct answer is (B) because producer’s equilibrium is achieved when marginal cost equals marginal revenue, which occurs at point L in the diagram.