For a purely competitive seller, price equals
Muluple Cholce
All of these cholces are correct.
average revenue.
marginal revenue.
total revenue divded by output
The correct answer and explanation is:
The correct answer is:
All of these choices are correct.
Explanation:
In a purely competitive market, a seller is considered a price taker, meaning they cannot influence the market price and must accept the price determined by market forces of supply and demand. The relationship between price, revenue, and output in such a market follows these principles:
- Price equals Average Revenue (AR):
- Average revenue (AR) is defined as total revenue (TR) divided by the quantity of output (Q), or AR = TR / Q.
- Since total revenue is simply the price (P) times the quantity sold (Q), dividing by Q gives us AR = P.
- This means that in a perfectly competitive market, price always equals average revenue.
- Price equals Marginal Revenue (MR):
- Marginal revenue (MR) is the additional revenue earned from selling one more unit of output.
- In a competitive market, each additional unit is sold at the market price, meaning MR = P.
- Price equals Total Revenue divided by Output:
- Total revenue (TR) is calculated as TR = P × Q.
- When divided by output (Q), we get TR/Q = P, which confirms that price equals total revenue divided by output.
Thus, in a purely competitive market, price is equal to all three measures: average revenue, marginal revenue, and total revenue divided by output. This characteristic is fundamental to understanding how firms operate in a perfectly competitive environment.
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