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The theory of the firm under perfect competition — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsThe theory of the firm under perfect competition4 Marks
Question
Explain the conditions of producer's equilibrium under perfect competition.
✓

Answer

A producer is said to be in equilibrium when he produces that level of output at which:
  1. MC = MR
  2. MC > MR, after the MC = MR level of output.
Now explaining these two conditions of producer's equilibrium:
  1. MC = MR: When a given producer starts producing a good with the given factors and he finds MR > MC, he will go on producing, because every new unit produced adds to his profit. As he goes on producing he may face the output level when MC = MR and this level of output satisfies MC = MR condition of equilibrium.
  2. MC > MR after the MC = MR output level: After the MC = MR level of output, if MC > MR, every new unit produced is sold at a loss. As a result, he will not like to produce more units. Therefore, only that output level at which MC = MR and beyond which MC > MR, is the output at which the producer is in equilibrium.

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