In perfect competition, since the firm is a price taker, the ________ curve is straight linea)Total costb)Marginal costc)Total revenued)Marginal revenueCorrect answer is option 'D'. Can you explain this answer?

Question

Answer

Marginal revenue is the extra revenue generated when a perfectly competitive firm sells one more unit of output. The marginal revenue received by a firm is the change in total revenue divided by the change in quantity.

Perfect competition is a market structure with a large number of small firms, each selling identical goods. Perfectly competitive firms have perfect knowledge and perfect mobility into and out of the market. These conditions mean perfectly competitive firms are price takers, they have no market control and receive the going market price for all output sold.

Since they are the price takers and have no control over price but just the production, so even if they increase their quantity of production, still the price will remain constant and so does the marginal revenue.

Answer

For a perfectly competitive with no market control

, the marginal revenue

Answer

D, because demand is perfectly elastic

Answer

Marginal revenue

Answer

Introduction:
In perfect competition, firms are considered price takers because they have no control over the market price. They must accept the price determined by the market. As a result, the firm's demand curve is perfectly elastic, meaning that the firm can sell as much as it wants at the market price without affecting the price itself. In this context, it is important to understand the relationship between price, revenue, and cost.

Explanation:
In perfect competition, the firm's objective is to maximize its profit. To do so, it needs to determine the level of output at which its profit is maximized. In order to make this decision, the firm compares its marginal revenue (MR) and marginal cost (MC).

Marginal Revenue (MR):
Marginal revenue is the additional revenue generated from selling one additional unit of output. In perfect competition, since the firm is a price taker, the market price is equal to the firm's marginal revenue. This is because the firm can sell any quantity at the market price without affecting the price itself. As a result, the firm's marginal revenue curve is a horizontal line at the market price.

Marginal Cost (MC):
Marginal cost is the additional cost incurred from producing one additional unit of output. The firm's marginal cost curve represents the change in total cost for each additional unit of output. In the short run, the marginal cost curve typically increases due to diminishing marginal returns. However, in the long run, it may exhibit different shapes depending on economies of scale.

Profit Maximization:
To maximize profit, the firm needs to determine the level of output at which marginal revenue equals marginal cost. This is because producing additional units of output will only be profitable if marginal revenue exceeds marginal cost. Therefore, the firm will continue to produce as long as MR > MC and stop when MR = MC.

Conclusion:
In summary, in perfect competition, the firm's demand curve is perfectly elastic, and its marginal revenue curve is a horizontal line at the market price. This is because the firm is a price taker and can sell any quantity at the market price without affecting it. The firm determines its level of output by comparing marginal revenue and marginal cost to maximize profit.

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