Market Structure and Pricing — Economics STD 11 — Question

1. MC = MR
A rational seller will not be in equilibrium at output level 1, though MC = MR at that point. He continues his production till 5 units where MC < MR. Beyond 5 units of Q, MC > MR where the seller incurs loss. So condition for equilibrium MC – MR. It is a necessary but not a sufficient condition.
2. MC cuts MR curve from below (Sufficient conditions):
MC curve is ‘U’ shaped. MR cuts MC both from above (at point A) and also from below (at point B). Only at point B the equilibrium condition is fulfilled.
Thus for equilibrium under all market situations the two conditions are MC = MR and MC cuts MR from below.