Question

In: Economics

How is market price, average revenue and marginal revenue related for a perfectly competitive firm and...

How is market price, average revenue and marginal revenue related for a perfectly competitive firm and why?

Solutions

Expert Solution

Under perfectly competitive firm, the market price, average revenue, and marginal revenue are equal to each other because a perfect competition is characterised by the presence of large number of firms selling the similar product and no firm has a control over the price, therefore, they have to accept the price is set by the industry and if any firm tries to charge above the market price then nobody is going to buy from that firm because, in perfect competition, there is a symmetric information in the sense that buyers and sellers are well aware about the market price.


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