EQUILIBRIUM OF THE FIRM AND INDUSTRY: GENERAL

finn is said to be in equilibrium when it has no incentive either to expand or to contract its output. A firm would not like 10 change its level of output only when ‘Is total profits arc the maximum. A rational entrepreneur will expand output if he: thinks he can increase his total profits by doing so, and likewise, he will contract his output if he thinks he can avoid losses and thus increase his total profits. Therefore,  firm is ill equilibrium position when it is earning maximum money profits, Conditions of Firm’s Equilibrium Having studied marginal revenue and average revenue in the previous chapter. we are now in a position to discuss the conditions of equilibrium of the finn. Here, we shall attempt only an analysis of the. conditions of firm’s equilibrium in general and not with reference to any particular market fonn. TIle firm’s equilibrium conditions with particular reference to different market forms, i.e., under perfect com. petition. monopoly and imperfect competition, will be discussed in later chapters.

We further assume, for the sake of simplicity, that the firm produces only one product. Our analysis would, however, remain valid also in case of multiple-product firm. But when a firm produces two goods or more, certain other complications arise which we wish to avoid at this stage. The equilibrium of the firm can be explained in two ways:

(i) With the help of total revenue and total cost curves, and Iii I With the aid of marginal revenue and marginal cost curves.