Why is the marginal revenue curve for a perfectly competitive firm the same as its demand...

Why is the marginal revenue curve for a perfectly competitive firm the same as its demand curve?

Expert Solution

Perfect competition is a market structure where there are large number of producers (firms) producing homogeneous product at the same price.So each firm can sell any amount at the price prevalent in the market.Since price is constant Average revenue (total revenue/no. of units) is also constant.So the demand curve curve of the perfectly competitive firm is perfectly elastic (horizontal) which signifies that the firm can sell any amount at the ruling price.Since AR equals price, horizontal line AR is called price line or the demand curve of the competitive firm

Marginal revenue is the addition to the total revenue resulting from the sale of one additional unit of output.

In the perfectly competitive firm additional units can be sold at the same price MR is also constant as price.So MR curve is also perfectly elastic and is horizontal.So AR (demand curve) and MR curve coincide at all levels of output.

So in a perfectly competitive firm AR = Price =MR =DD

So marginal revenue curve for a perfectly competitive firm is same as its demand curve.

Rahul Sunny answered 2 years ago

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