Question
Explain producer’s equilibrium using a schedule. Use total cost and total revenue approach.
Equilibrium refers to a state of rest when no change is required. A firm (producer) is said to be in equilibrium when it has no inclination to expand or to contract its output. This state either reflects maximum profits or minimum losses.
Total Revenue-Total Cost Approach (TR-TC Approach):
According to TR-TC approach, producer’s equilibrium refers to stage of that output level at which the difference between TR and TC is positively maximised and total profits fall as more units of output are produced. So, two essential conditions for producer’s equilibrium are:
| Output (units) | Price (Rs.) | TR (Rs.) | TC (Rs.) | Profit = TR - TC (Rs.) | Remarks |
| 0 | 10 | 0 | 5 | -5 | Profit rises |
| 1 | 10 | 10 | 8 | 2 | |
| 2 | 10 | 20 | 15 | 5 | |
| 3 | 10 | 30 | 21 | 9 | |
| 4 | 10 | 40 | 31 | 9 |
Producer’s Equilibrium |
| 5 | 10 | 50 | 42 | 8 | |
| 6 | 10 | 60 | 54 | 6 |
| Output (units) | Price (Rs.) | TR (Rs.) | TC (Rs.) | Profit = TR-TC (Rs.) | Remarks |
| 0 | 10 | 0 | 2 | -2 | Profit rises |
| 1 | 9 | 9 | 5 | 4 | |
| 2 | 8 | 16 | 9 | 7 | |
| 3 | 7 | 21 | 11 | 10 | |
| 4 | 6 | 24 | 14 | 10 | Producer’s Equilibrium |
| 5 | 5 | 25 | 20 | 5 | |
| 6 | 4 | 24 | 27 | -3 |
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