Equilibrium of the firm – AR and MR having downward slope

 The following figure shows that the firm has a downward sloping demand curve or average revenue curve. The corresponding MR curve is also down sloping from left to right. The MC curve is rising. At point R marginal cost curve cuts marginal revenue curve from below. This is equilibrium position of the firm. The equilibrium quantity is OQ and the equilibrium price is OP. The firm cannot produce beyond OQ because the additional cost of production will be higher than the additional revenue. At the same time, the firm will not like to produce less than OQ because its profits will not be maximized except at OQ. Therefore, the firm is in equilibrium when MC = MR

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