The producer strikes his equilibrium only when MP is diminishing.

Question

Defend or refute the statement. Write ‘yes’ or ‘no’ with reason:

The producer strikes his equilibrium only when MP is diminishing.

Answer 1

Yes. A producer strikes his equilibrium only when MP is diminishing. Because, diminishing MP means rising MC. The producer stops production when rising MC matches with MR. Beyond this point, rising MC would exceed MR, causing loss of profit.