A perfectly competitive firm has a random demand with a 30 percent chance of being $15 and a 70 percent chance of being $20. What is the firm's expected marginal revenue?

Question

Quizplus · Accepted Answer

The expected revenue is the weighted sum of the possible revenue outcomes, weighted by their probabilities: 
($15*0.3) + ($20*0.7) = $18.50
In a perfectly competitive market, the demand curve that the firm faces is its marginal revenue (MR) curve. Therefore, the expected revenue of $18.50 is also the expected marginal revenue.

A Perfectly Competitive Firm Has a Random Demand with a 30