CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production
A firm in a perfectly competitive market sells each unit of its product at a constant price of ₹40. What is true about its average revenue (AR) and marginal revenue (MR)?
In perfect competition the firm takes the market price as given, so each extra unit adds the same ₹40 to total revenue. Hence average revenue and marginal revenue are both equal to ₹40, and the firm's revenue curve is a horizontal line at the price.
- AAR is ₹40 and MR is below ₹40
- BAR equals MR and both equal ₹40Correct
- CMR is ₹40 but AR falls as output rises
- DAR is above MR and both are falling
Explanation
Under perfect competition the firm is a price taker, so every extra unit sells at ₹40. Total revenue rises by ₹40 per unit, so MR = ₹40, and AR = TR/Q = ₹40. The option saying MR is below AR describes a firm facing a downward-sloping demand curve, which is not the case here.
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