Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

(i) The firm's marginal revenue is $4. This is because in a perfectly competitive market, the firm is a price taker and must sell its output at the market price. Therefore, selling one more unit of output will not increase the price, and thus the marginal revenue is equal to the market price.

(ii) The firm's total revenue is $1600. This is because total revenue is equal to price multiplied by quantity, so $4 x 400 = $1600.

(iii) The firm's average revenue is also $4. This is because average revenue is equal to total revenue divided by quantity, so $1600 / 400 = $4.

Suppose That a Firm Operating in Perfectly Competitive Market Sells