The sufficient condition for a firm to be in equilibrium is that the

Analyzing the question

The question asks for the sufficient (second-order) condition for a firm's equilibrium. Economics textbooks distinguish two conditions:

1. Necessary (first-order) condition: MC = MR
2. Sufficient (second-order) condition: MC must cut MR from below. In other words, MC must be rising and slope upward through MR, so that beyond the equilibrium point MC is greater than MR.

Explaining the concept

Setting MC = MR is not enough on its own. This equality can occur at a point of minimum profit as well as at maximum profit. Look at what happens on either side of the output level:

• Before the equilibrium output: MR > MC. Producing one more unit adds more to revenue than to cost, so the firm should expand.
• After the equilibrium output: MC > MR. Each extra unit adds more to cost than to revenue, so the firm should cut back.

This is only true if MC is rising through MR, which means MC cuts MR from below. At that point profit is at a maximum, so the firm has no reason to change output.

Checking the options

• A. Firm must show that it is profitable. Incorrect. A firm can be in equilibrium while making normal profit or even a loss in the short run, as long as it minimizes losses.
• B. MC = AR. Incorrect. The condition uses MR, not AR. MC = AR holds only in perfect competition, where AR = MR anyway, and it is still just the necessary condition.
• C. MR curve above AR curve. Incorrect. Under imperfect competition MR lies below AR, and under perfect competition they coincide.
• D. MC curve cuts MR curve from below. Correct. This is the second-order (sufficient) condition for profit maximization.

Answer: D

Exam tip: Remember it as "Necessary = Equal, Sufficient = Slopes up." The necessary condition is MC = MR, and the sufficient condition is MC cutting MR from below. If a JAMB question uses the word "sufficient" or "second-order", look for the option about the MC curve cutting MR from below.