Which of the following statements is not correct? Only for competitive firms does average revenue equal the price of the good. For perfectly competitive firms, average total cost equals marginal cost at the long-run equilibrium. Average revenue equals total revenue divided by the quantity produced. For perfectly competitive firms, marginal revenue equals average revenue. None Which of the following statements is not correct? Only for competitive firms does average revenue equal the price of the good. For perfectly competitive firms, average total cost equals marginal cost at the long-run equilibrium. Average revenue equals total revenue divided by the quantity produced. For perfectly competitive firms, marginal revenue equals average revenue. < question=”” 7=”” of=”” 40=”” a=”” moving=”” to=”” another=”” question=”” will=”” save=”” this=”” response.=”” close=””>
The Correct Answer and Explanation is :
The statement that is not correct is:
“Only for competitive firms does average revenue equal the price of the good.”
Explanation:
In economic theory, average revenue (AR) refers to the total revenue per unit of output, and it is calculated by dividing total revenue by the quantity of output produced.
- For perfectly competitive firms, average revenue (AR) equals the price of the good. This is because in perfect competition, firms are price takers, meaning they accept the market price as given and sell each unit of output at that price. Since total revenue is calculated as price × quantity, dividing total revenue by quantity gives the price of the good. Therefore, in perfect competition, AR = price.
- For monopolistic and other types of firms, average revenue may not equal the price of the good. A monopoly or monopolistic competition firm has some control over the price and faces a downward-sloping demand curve. Therefore, as quantity increases, the firm may need to lower the price to sell more units. As a result, average revenue will decline as output increases, and it will not necessarily equal the price of the good.
Thus, the correct version of the statement should be that “For perfectly competitive firms, average revenue equals the price of the good,” but not necessarily for all competitive firms. Therefore, the original statement is incorrect as it implies this relationship holds exclusively for competitive firms, when it is specifically true only for perfectly competitive firms.
The other statements are correct:
- For perfectly competitive firms, average total cost equals marginal cost at the long-run equilibrium: In the long-run equilibrium, a perfectly competitive firm will adjust its production level so that its marginal cost (MC) equals its average total cost (ATC) and also equals the market price.
- Average revenue equals total revenue divided by the quantity produced: This is the definition of average revenue. It holds true for any firm type.
- For perfectly competitive firms, marginal revenue equals average revenue: In perfect competition, both marginal revenue (MR) and average revenue (AR) are equal to the market price.