Question

Why do businesses seek in it equilibrium price

Answer 1

Businesses seek the equilibrium price because it represents the price at which the quantity demanded is equal to the quantity supplied in the market. At this price, there is no shortage or surplus of goods, and the market is typically in a stable condition.

For businesses, the equilibrium price is important because it allows them to maximize their profits. If a business sets a price above the equilibrium level, the quantity demanded will be lower than the quantity supplied, leading to a surplus and potentially unsold inventory. On the other hand, if a business sets a price below the equilibrium level, the quantity demanded will exceed the quantity supplied, leading to a shortage and potential missed sales opportunities.

By setting their prices at the equilibrium level, businesses can ensure that they are selling their goods or services at the right price to attract customers and generate sales, while also ensuring that they do not face excess inventory or missed revenue opportunities. It represents an optimal balance between supply and demand in the market.