Given below is the cost schedule of a product produced by a firm. The market price per unit of the product at all levels of output is ₹ 12. Using marginal cost and marginal revenue approach, find out the level of equilibrium output. Give reasons for your answer.

A firm is said to be in equilibrium if following two conditions are fulfilled –

(i) Marginal Cost (MC) should be equal to Marginal Revenue, (MR) and

(ii) Beyond the point of equilibrium, MC should tend to rise.

Now let us find MC for the given data

From the above table we can see that MR and MC are both equal when the output is 1 unit and 5 units. However, the firm will be at equilibrium only at the output level of 5 units, because both the conditions of equilibrium are fulfilled at this level of output. At the output level of 1 unit, the MC = MR but after that the MC is falling, so the second condition is not satisfied.