For a purely competitive seller, price equals Multiple Choice average revenue. marginal revenue. total revenue divided by output.
The Correct Answer and Explanation is:
Correct Answer:
✅ All of the above
Explanation:
In a purely competitive market, all firms are price takers. This means that each firm sells its product at the market-determined price and cannot influence that price by changing its own level of output. As a result, the price remains constant for each unit sold. This situation leads to a unique relationship among price, average revenue, marginal revenue, and total revenue.
1. Price equals Average Revenue:
Average revenue is defined as total revenue divided by the quantity of output sold. In perfect competition, since every unit is sold at the same price, the average revenue is the same as the price.
Formula:
Average Revenue (AR)=Total RevenueQuantity=Price\text{Average Revenue (AR)} = \frac{\text{Total Revenue}}{\text{Quantity}} = \text{Price}Average Revenue (AR)=QuantityTotal Revenue=Price
2. Price equals Marginal Revenue:
Marginal revenue is the additional revenue earned from selling one more unit of output. In a perfectly competitive market, selling one more unit adds the same amount to total revenue as the price of the product, because the firm sells all units at the same market price.
Formula:
Marginal Revenue (MR)=ΔTotal RevenueΔQuantity=Price\text{Marginal Revenue (MR)} = \frac{\Delta \text{Total Revenue}}{\Delta \text{Quantity}} = \text{Price}Marginal Revenue (MR)=ΔQuantityΔTotal Revenue=Price
3. Price equals Total Revenue divided by Output:
This is simply the definition of average revenue, and again, because all units are sold at the same price, the result is that price equals total revenue divided by output.
So, in a purely competitive market, the price is not just a number that determines how much each unit is sold for. It also reflects the firm’s marginal and average revenue. This special condition arises because firms in such a market face a perfectly elastic demand curve, which is a horizontal line at the market price. Hence, all three expressions—average revenue, marginal revenue, and total revenue divided by output—are equal to the price.
