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? (i)
Marginal revenue equals $4.
(ii)
Average revenue equals $100.
(iii)
Total revenue equals $1,600.
A)(i) only
B)(iii) only
C)(i) and (iii) only
D)(i), (ii), and (iii)

Question

Quizplus · Accepted Answer

(i) Marginal revenue equals the change in total revenue that results from selling one additional unit of output. In a perfectly competitive market, the price is constant, so selling one more unit at a price of $4 will increase total revenue by $4. Therefore, marginal revenue equals $4.
(ii) Average revenue equals total revenue divided by the quantity sold. In this case, total revenue is $1,600 and the quantity sold is 400 units, so average revenue equals $4, not $100.
(iii) Total revenue equals price times quantity sold. In this case, the price is $4 and the quantity sold is 400 units, so total revenue equals $1,600. Therefore, (iii) is correct.

Suppose That a Firm Operating in Perfectly Competitive Market Sells