Why will profit maximizing firm in a competitive market never strikes its equilibrium in a state when MC is falling? Explain with suitable diagram
Dear student,
A profit maximising firm in a competitive market never strikes equilibrium in a state when MC is falling because because if MC is falling (i.e MC<MR) after MR = MC, it means that it is possible to add to the profits by producing more. However,if MC is rising (i.e MC>MR) after MR = MC, then it is not possible to add to profits by producing more, thus resulting in a stable equilibrium.
Regards.
A profit maximising firm in a competitive market never strikes equilibrium in a state when MC is falling because because if MC is falling (i.e MC<MR) after MR = MC, it means that it is possible to add to the profits by producing more. However,if MC is rising (i.e MC>MR) after MR = MC, then it is not possible to add to profits by producing more, thus resulting in a stable equilibrium.
Regards.