Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is correct? i) Marginal revenue equals $3.
Ii) Average revenue equals $600.
Iii) Average revenue exceeds marginal revenue, but we don't know by how much.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm faces a horizontal demand curve, which means that the price remains constant regardless of the quantity sold. Therefore, the marginal revenue of the 200th unit sold is equal to the price of $3. Average revenue, on the other hand, is the total revenue divided by the quantity sold, which in this case is ($3 x 200) / 200 = $3. Therefore, ii) is incorrect as average revenue equals the price in a perfectly competitive market. And iii) is also incorrect as average revenue and marginal revenue are equal in a perfectly competitive market.

Suppose That a Firm Operating in Perfectly Competitive Market Sells