Concept:A firm is in equilibrium at the output level where profit is maximised, not simply where marginal cost equals marginal revenue.
Explanation:The first condition for equilibrium is that marginal cost must equal marginal revenue, i.e.
MC=MR.
However, equality alone is not sufficient because
MC=MR can also occur at a loss-minimising point.
The necessary extra condition is that the marginal cost curve must cut the marginal revenue curve from below.
This means that after the point of intersection,
MC is greater than
MR, so any further output would reduce profit.
Hence, the sufficient condition is satisfied only when the
MC curve intersects the
MR curve from below.
Answer:D. marginal cost curve cuts the marginal revenue curve from below.