Question

Write the conditions of a producer's equilibrium with Marginal method.

Hint:

Always check the second condition!
MC can equal MR at two points (during falling and rising MC), but equilibrium only occurs when MC is rising.

Answer 1

Step 1: Understanding the Concept:
Producer's equilibrium is the level of output at which the producer earns maximum profit.
The Marginal method looks at the change in revenue and cost from producing one extra unit.
Step 2: Detailed Explanation:
There are two necessary and sufficient conditions:
1. Necessary Condition: \( MR = MC \). As long as \( MR>MC \), the producer can increase profit by producing more. If \( MR<MC \), the producer should decrease production.
2. Sufficient Condition: MC must be greater than MR after the point of equality. This means the MC curve must intersect the MR curve from below. This ensures that profit is maximized and not minimized.
Step 3: Final Answer:
A profit-maximizing firm produces where \( MC = MR \) and the marginal cost is increasing.