Equilibrium of the Firm – When AR and MR are horizontal.

  •  The figure given below the illustrate equilibrium of the firm.

When AR is constant MR becomes equal to it. MR intersects MC at R and R1. At both these points MC is equal to MR. Point R can not be a determinate equilibrium point since beyond this point, the MC is lower than MR and it is advantageous to the firm to produce more. By doing of, the firm can secure profits shown by the area RKR1. The determinate equilibrium point is in fact OQ for beyond that point MC and MR is not a sufficient condition of a firms equilibrium and that it is necessary that the MC curve cuts the MR curve from below, so that beyond the position of equality of MC and MR. MC is more than MR.

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