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Question -

Will a profit-maximizing firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? Give an explanation.



Answer -

No, as sufficient condition of producer equilibrium is Marginal Cost must be rising when Marginal Cost = Marginal revenue. It can be explained with the help of following diagram:

                       

Point F is not a producer equilibrium because at this point, marginal cost = marginal revenue when marginal cost is falling. It is so because after point F, and output then producer will continue to produce as long as MR becomes equal to MC as firm will find it profitable to raise the output level.

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