Explanation:

Producer equilibrium is the point where the producer is producing the optimal level of output that maximizes his profits. The condition for producer equilibrium is:

MC=MR

This means that the producer will produce the level of output where Marginal Cost (MC) is equal to Marginal Revenue (MR). In other words, the producer will produce the level of output where the additional cost of producing one more unit of output is equal to the additional revenue earned by selling one more unit of output.

Example:

Suppose a producer has a fixed cost of Rs. 1000 and variable cost of Rs. 10 per unit. The selling price of his product is Rs. 20 per unit. He is currently producing 100 units of output. To determine the producer equilibrium, we need to calculate the Marginal Cost (MC) and Marginal Revenue (MR) at this level of output.

MC = Change in Total Cost / Change in Quantity

MC = (Variable Cost of 100 units) / (Change in Quantity)

MC = (1000 + (10 x 100)) / (100 - 0)

MC = Rs. 20

MR = Change in Total Revenue / Change in Quantity

MR = (Selling Price of 100 units) / (Change in Quantity)

MR = (20 x 100) / (100 - 0)

MR = Rs. 20

Since MC = MR, the producer is in equilibrium at the current level of output. If the producer were to increase the level of output, MC would be greater than MR and profits would decrease. If the producer were to decrease the level of output, MR would be greater than MC and profits would also decrease. Therefore, the producer will maximize profits by producing 100 units of output.