“The firm's equilibrium refers to the situation in which producer maximizes his profits (or minimizes his loss) and the producer has no intention to make any changes in his existing production or to make any changes in his existing expenditure on means of production”. Profit of the firm operating in perfect competition market, is maximised where the price line (AR = MR) intersects the MC curve and MC should be rising.
Conditions for producer’s equilibrium :
(a) MR = MC.
(b) MC should be rising at that level of output .
(or MC curve intersects MR curve from below).
Assumptions :
(i) Rational behaviour of producer.
(ii) The goal of producer is profit maximisation.
(iii) Price of commodity remains constant.
(iv) Price of means of production remains constant.
(v) There is perfect competition exist in market.
(vi) Technique of production and management remains constant.
If the producer is producing 4 units of commodity then MR is equal to MC. Which means that the cost incurred on producing additional unit is equal to the revenue received from the sale of that unit, which indicates that the producer is receiving normal profit on that unit but the total profit is maximum. So producer will maintain this level of output for maximum profit. At this level MR = MC and MC is rising at that level of output .
