For producer equilibrium to strike, why is it necessary that MC = MR?
Dear student,
Under MR MC approach there are following situations:
1) The producer is also not in equilibrium when MR < MC because benefit is less than the cost. By producing less the producer can add to his profits.
2)When MC is equal to MR, the benefit is equal to cost, the producer is in equilibrium subject to that MC becomes greater than MR beyond this level of output. When MC equals MR(subject to the supporting condition) the producer’s profit would be less if he produces output more than or less than the ‘MC = MR’ output as explained above. Therefore, for equilibrium to reach it is a necessary condition (but not sufficient) that MC equals MR.
Regards
Under MR MC approach there are following situations:
1) The producer is also not in equilibrium when MR < MC because benefit is less than the cost. By producing less the producer can add to his profits.
2)When MC is equal to MR, the benefit is equal to cost, the producer is in equilibrium subject to that MC becomes greater than MR beyond this level of output. When MC equals MR(subject to the supporting condition) the producer’s profit would be less if he produces output more than or less than the ‘MC = MR’ output as explained above. Therefore, for equilibrium to reach it is a necessary condition (but not sufficient) that MC equals MR.
Regards