What is Producer’s Equilibrium?
Producer’s Equilibrium refers to the price and output combination which brings maximum profit to the producer.
An equilibrium is a state where there is no change required. Producer’s Equilibrium is defined as the state of maximum profit/minimum losses. The point where the producer does not prefer to expand or contract his/her supply is termed as Producer’s Equilibrium. The producer’s equilibrium can be determined by two approaches, the TR-TC Approach and the MR-MC Approach. A producer can achieve equilibrium under two states; when prices are constant (Perfect Competition Market) and when prices fall with the increase in output (Imperfect Competition Market).
Table of Content
- Assumptions of Producer’s Equilibrium
- Determination of Producer’s Equilibrium (TR-TC Approach)
- Determination of Producer’s Equilibrium (MR-MC Approach)
Producer’s Equilibrium: Meaning, Assumptions, and Determination
Producer’s Equilibrium is determined in terms of profit. Like consumers, producers also aim to maximise their satisfaction. A producer is someone who provides goods and services to consumers/customers in exchange for revenues and producers need to incur expenditure to produce those goods and services. The excess of revenues over expenditures is known as Profit. The producers aim to maximise this profit only, to maximise their satisfaction.
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