Question

A perfectly competitive firm operates in a market where P = $4. The firm's revenue is ______ and marginal revenue is ________.

	A) R = 4q; MR = 4
	B) R = 4; MR = 4q
	C) R = MR = 4
	D) R = 4/q; MR = 4q

Answer 1

R = 4q ; MR =4

Revenue refers to the amount received by a firm from the sale of a given quantity of a commodity in the market.

Revenue = Price*Quantity

Price = $4

Let quantity be q

Revenue = 4*q = 4q

In the perfectly competitive market, each firm is a price taker. All the firms have to accept the same price as determined by market forces of demand and supply. As a result, uniform price prevails in the market. It means, revenue from every additional unit (known as MR) is equal to price of the product i.e. P= MR. Price = $4. Therefore P = MR = 4.