“The producer's equilibrium refers to the situation in which producer maximizes his profits and the producer has no intention to make any changes in his existing 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.
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.
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).
In present diagram At “E” point MC curve intersects the MR curve and MC is increasing. Which means both the condition of producer's equilibrium is satisfied at this level. Therefore the producer will try to produce “OQ” units of this commodity, where he will receive maximum profit.
