Equilibrium is a position of rest; a state of no change. A producer will be in equilibrium when he does not desire a change from his current level of production. Naturally, this will be the position of maximum profit. When a producer is earning maximum profit, he will not have any desire to change that level of output. Therefore, producer's equilibrium is at the point of maximum profit.
It can be seen from the diagram that MC and MR are equal at point F and E. But there can be only one equilibrium point. Which is that ? Point F cannot be the equilibrium point even though MC and MR are equal. This is because if the producer expands production beyond point F (output ON), his additional cost will be lower than his additional revenue (MC curve is below MR curve). This means more profit. So, the producers will expand production. He will be in equilibrium, earning maximum profits at point E (output ON).
A producer will expand production, so long as the additional unit producer adds more to revenue than to cost. In other words, production will be increased so long as marginal revenue (MR) is greater than marginal cost (MC). Excess of MR over MC is the profit from the additional unit. When MC equals MR, further production will be stopped. This is because further increase in production will lead to excess of MC over MR. Since excess of MC over MR means loss, the producer will not produce that unit. Therefore the producer will be in equilibrium when MC=MR
Equality of MC and MR is a necessary but not a sufficient condition fore equilibrium. There is one more condition. This condition requires that the MC curve cuts the MR curve from below. The intersection of the MR curve by the the MC curve from above is not the equilibrium point. This is clear from the diagram
