Question

The increase in total revenue that results from selling one more unit of output is A. marginal revenue. B. average revenue. C. marginal cost. D. None of the above. What is the relationship between​ price, average​ revenue, and marginal revenue for a firm in a perfectly competitive​ market? A. Price is equal to both average revenue and marginal revenue. B. ​Price, average​ revenue, and marginal revenue usually all have different values. C. Price is greater than average revenue and equal to marginal revenue. D. Price is equal to average revenue and greater than marginal revenue.

Answer 1

Answer:

(i) Option (A) is correct.

(ii) Option (A) is correct.

Explanation:

(i) Marginal revenue refers to the change in total revenue obtained from the sale of an extra unit of a commodity. It is calculated by differentiating total revenue with respect to output. It is shown as:

$Marginal\ revenue=\frac{dTR}{dq}$

where,

TR = Total revenue

q = output

(ii) In a perfectly competitive market, price is equal to both average revenue and marginal revenue. Since, firms in a competitive market are not required to reduce the price of their product for selling more number of units. Hence, the average revenue remains the same at all the level of output. That's why average revenue in equal to the price under perfect market conditions.

Therefore, every additional unit of an output is sold at a same price, so the marginal revenue obtained from an extra unit is constant and hence, price is equal to the marginal revenue.