In perfect competition, how is the market price related to marginal revenue for each supplying firm?
A)P is the same as MR at all output levels.
B)P is less than MR at all (or most)output levels.
C)P is greater than MR at all (or most)output levels.
D)P is either greater than MR or less than MR at particular output levels, but never the same as MR.
E)None of the above.

Question

Quizplus · Accepted Answer

In perfect competition, the market price is determined by the intersection of the market demand and supply curves. Since each firm in perfect competition is a price taker, it cannot affect the price of the product. Therefore, the price (P) will remain constant for each supplier. Moreover, in perfect competition, the marginal revenue (MR) equals the price because each additional unit sold increases the revenue by the price of the product. Hence, the market price is the same as the marginal revenue at all output levels.

In Perfect Competition, How Is the Market Price Related to Marginal