What is the relationship among the following variables for a perfectly competitive firm: the market price, average revenue and marginal revenue?
A)Average revenue is equal to the market price; average revenue is greater than marginal revenue.
B)The market price is equal to both average revenue and marginal revenue.
C)Average revenue is equal to marginal revenue; average revenue is greater than the market price.
D)As a firm lowers the market price to sell more output, marginal revenue and average revenue will be less than the market price.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, there are many firms producing the same product, so no single firm can affect the market price. Thus, the market price is given to the firm and is the same as both its average revenue and marginal revenue. A perfectly competitive firm's demand curve is perfectly elastic, meaning that its marginal revenue curve is also the firm's average revenue curve. Therefore, the market price is equal to both average revenue and marginal revenue. Option B is the correct choice.

What Is the Relationship Among the Following Variables for a Perfectly