Suppose that a firm operating in perfectly competitive market sells 300 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 $100.
Iii) Total revenue equals $300.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the price is constant, and the firm is a price taker. Therefore, the marginal revenue equals the price, which is $3 in this case. Average revenue is calculated by dividing total revenue by the quantity sold. Thus, average revenue in this case is $1, not $100. Total revenue is the product of price and quantity, which is $900 (=$3 x 300). However, the question asks for the correct statement, not the calculation. Therefore, only statement (i) is correct.

Suppose That a Firm Operating in Perfectly Competitive Market Sells