Question
Explain producer's equilibrium with the help of a diagram.
✓
Answer
Producer's equilibrium refers to a situation of profit maximisation or cost minimisation. To study producer's equilibrium, two approaches are used
- Total Revenue and Total Cost approach: Under this approach, a producer is deemed to be in equilibrium, on the fulfillment of the following two conditions
- The difference between TR and TC is the maximum.
- Total profits are falling after this level of output.
- Marginal Revenue and Marginal Cost approach Under this approach, a producer attains equilibrium on the fulfillment of the following two conditions:
- MR = MC
- MC is rising after the point of equilibrium.
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