Q.A firm operating under perfect competition sells its output at the ruling market price of ₹40 per unit. At its current output, the firm's marginal cost is also ₹40. Is the firm in equilibrium? Explain using the relevant rule.
Under perfect competition, a firm is a price taker, so for it price equals average revenue equals marginal revenue at every output level: . A firm maximises its profit at the output where marginal cost equals marginal revenue, i.e. where
Here the ruling price is ₹40, so as well. We are told the firm's marginal cost at its current output is also ₹40. Since , the equilibrium condition is exactly satisfied at this output level — the firm has no incentive to expand output further (beyond this point MC would exceed MR, making the next unit a loss-maker) and no incentive to cut output (below this point MR would exceed MC, so producing more would still add to profit).
Yes, the firm is in equilibrium, because — exactly the condition required for profit maximisation under perfect competition.
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