Revenue Calculation in Perfect Competition

In a perfect competition, a firm is a price taker, meaning it has no control over the market price and must accept the prevailing price in the market. The market price is determined by the forces of demand and supply. In this scenario, the firm is currently selling 100 units at a price of $5 each.

Calculation of Current Revenue

To calculate the current revenue obtained by the firm, we multiply the quantity sold by the price per unit.

Revenue = Quantity Sold * Price per Unit
Revenue = 100 units * $5 per unit
Revenue = $500

Therefore, the firm's current revenue is $500.

Calculation of Revenue at Increased Price

If the firm decides to increase its price to $6 per unit, we can calculate the revenue using the same formula as before.

Revenue = Quantity Sold * Price per Unit
Revenue = 100 units * $6 per unit
Revenue = $600

Therefore, if the firm increases its price to $6 per unit, the revenue obtained will be $600.

Explanation

When the firm increases the price from $5 to $6, the revenue increases from $500 to $600. This is because the firm is still selling the same quantity of 100 units, but at a higher price.

In perfect competition, the firm is a price taker and has no control over the market price. Therefore, the decision to increase the price is solely determined by the firm. However, it's important to note that increasing the price might lead to a decrease in demand as consumers may find the product less attractive at a higher price.

The revenue calculation is a simple multiplication of the quantity sold and the price per unit. By increasing the price, the firm is able to generate additional revenue, assuming the demand remains constant. However, it is crucial for the firm to consider the elasticity of demand and the potential impact on sales volume before making such a decision.