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 In market, the price and output equilibrium is determined on the basis of:
  • a)
    Total revenue and total cost
  • b)
    Total cost and marginal cost 
  • c)
    Marginal revenue and marginal cost
  • d)
    Only marginal cost.
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
In market, the price and output equilibrium is determined on the basis...
Introduction:
In the market, the price and output equilibrium is determined by the interaction of demand and supply forces. The equilibrium point is where the quantity demanded equals the quantity supplied, resulting in a stable market price and output level. The correct answer to this question is option 'C' - marginal revenue and marginal cost.

Explanation:
- Marginal Revenue (MR): Marginal revenue is the additional revenue generated by selling one more unit of a product. It is calculated by dividing the change in total revenue by the change in quantity sold. When a firm operates in a perfectly competitive market, its marginal revenue is equal to the market price.
- Marginal Cost (MC): Marginal cost is the additional cost incurred by producing one more unit of a product. It is calculated by dividing the change in total cost by the change in quantity produced. Marginal cost represents the cost of producing an additional unit and helps firms determine the optimal level of production.

Determining equilibrium:
- In a perfectly competitive market, firms maximize their profits by producing at a level where marginal revenue equals marginal cost. This is because producing at a level where MR > MC means there is potential for higher profits, while producing at a level where MR < mc="" means="" there="" is="" potential="" for="" lower="" />
- When MR > MC, producing an additional unit will generate more revenue than cost, resulting in increased profits. Therefore, firms should increase production.
- When MR < mc,="" producing="" an="" additional="" unit="" will="" generate="" more="" cost="" than="" revenue,="" resulting="" in="" decreased="" profits.="" therefore,="" firms="" should="" decrease="" />
- At the equilibrium point, MR = MC. This means that producing an additional unit will generate revenue exactly equal to the cost, resulting in maximum profits. This is the point where the market price and output level are determined.

Conclusion:
In conclusion, the equilibrium price and output level in a market are determined based on the equality of marginal revenue and marginal cost. This ensures that firms maximize their profits by producing at the optimal level where the additional revenue from selling one more unit equals the additional cost of producing that unit.
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In market, the price and output equilibrium is determined on the basis of:a)Total revenue and total costb)Total cost and marginal costc)Marginal revenue and marginal costd)Only marginal cost.Correct answer is option 'C'. Can you explain this answer?
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