Answer to Question #323779 in Microeconomics for rubaiya

Question

‘In perfect competition, marginal revenue equals price’ – explain with examples of product schedule and curves .

Answer 1

Firms in a perfect competition market structure are price takers, they have no control over the prices. Demand and supply are the determinants of equilibrium price and the firm's output.

A firm is at equilibrium when units of output produce, thus the marginal cost to produce additional unit= Marginal Revenue to be earned by its sale.

Firms Schedule:

Equilibrium condition: MC=MR. In perfect competition, price (P)=MR=AR

When more units are sold at the same price, in addition to total revenue, marginal revenue is constant and equals price( P). Therefore MR=P=AR. P=MR, the equilibrium condition (MR=MC) in perfect competition as P=MC