Suppose that a firm operating in perfectly competitive market sells 50 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? i) Marginal revenue equals $5.
Ii) Average revenue equals $10.
Iii) Price equals $15.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker, which means it cannot influence the price and has to accept whatever the market price is. Therefore, the price is given and equals the average revenue (AR).

AR = TR/Q = $500/50 units = $10/unit

Since the firm sells all its output at this price, MR = AR = $10/unit.

So, statement ii) only is correct. Statement i) is incorrect because marginal revenue (MR) is not equal to the price or the average revenue. In a perfectly competitive market, MR is always equal to price, but in this case, the given price is $10/unit, not $5/unit. Statement iii) is also incorrect because the given price is $10/unit, not $15/unit.

Suppose That a Firm Operating in Perfectly Competitive Market Sells