CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production
A firm selling in a perfectly competitive market sells 100 units at the market price of ₹40. It then sells 101 units at the same price. What is the marginal revenue of the 101st unit, and how does it compare with average revenue?
Marginal revenue is ₹40 and equals average revenue. In perfect competition the firm is a price taker, so each extra unit adds exactly the market price to total revenue. Hence price, average revenue and marginal revenue are all the same.
- A₹40, equal to average revenueCorrect
- B₹40, higher than average revenue
- C₹0, lower than average revenue
- D₹4,040, equal to average revenue
Explanation
TR at 100 units is 4,000 and at 101 units is 4,040, so MR = 4,040 − 4,000 = ₹40. Average revenue is also ₹40 since price is constant. Under perfect competition, price = AR = MR, so MR is not lower than AR.
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