What is the relationship among the following variables in for a perfectly competitive firm: the market price, average revenue and marginal revenue?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker and cannot affect the market price. Therefore, the market price is equal to both average revenue (total revenue divided by quantity) and marginal revenue (the change in total revenue from selling one more unit). This is because the firm can sell any quantity of output at the market price, and therefore, the additional revenue from selling one more unit will be equal to the market price. So, in this scenario, the correct answer is B, where the market price is equal to both average revenue and marginal revenue.

What Is the Relationship Among the Following Variables in for a Perfectly