Eduprobe
Question:
From the following total cost revenue schedule of a film, find out the level of output, using marginal cost and marginal revenue approach, at which the firm would be in equilibrium. Given reasons for your answer. Output(units) Total Revenue(Rs.) Total Cost(Rs.) 1 10 8 2 18 15 3 24 21 4 28 25 5 30 33
Solution:
The equilibrium level of output will be 4 units. This is because at this point the two conditions of equilibrium (Using MR-MC approach) are met. this can be seen as follows:
We are given the Total Revenue (TR) and Total Cost (TC). From here, we can find Marginal Revenue (MR) and Marginal Cost (MC), as given in the following schedule.
| Units | Total Revenue (TR) | Marginal Revenue (MR) | Total Cost (TC) | Marginal Cost (MC) |
|---|---|---|---|---|
| 1 | 10 | - | 8 | - |
| 2 | 18 | 8 | 15 | 7 |
| 3 | 24 | 6 | 21 | 6 |
| 4 | 28 | 4 | 25 | 4 |
| 5 | 30 | 2 | 33 | 8 |
| Here, as we can see, the first and the order conditions of equilibrium through MR-MC approach are being met at unit 4. That is, | ||||
| First Condition : MR=MC=4 | ||||
| Second Condition : MC is rising from this point and meets MR from below. | ||||
| Thus, equilibrium output is 4 units. |