Firms have several different concepts of revenue: total revenue, average revenue, marginal revenue, and price. For a perfectly competitive firm, which statement below is true?
A) Only average revenue and price are equal.
B) Total revenue, average revenue, marginal revenue, and price are all equal.
C) Only marginal revenue and price are equal.
D) Average revenue, marginal revenue, and price are equal.
E) None of these revenues are equal.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker, meaning it cannot influence the market price. Therefore, the price remains the same no matter how much the firm produces, and so price is equal to both average revenue (total revenue divided by the quantity sold) and marginal revenue (the change in total revenue resulting from a one-unit increase in output). Therefore, the average revenue, marginal revenue, and price are all equal. Total revenue may differ from these because it is simply the price multiplied by the quantity sold.

Firms Have Several Different Concepts of Revenue: Total Revenue, Average