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IAI Actuarial Core Principles · Business Economics · Profit maximisation under perfect competition and monopoly

A firm sells 200 units of a product at a constant price of ₹50 per unit, regardless of how much it sells. Which statement about its revenue is correct?

Marginal revenue equals ₹50 and equals average revenue. With a constant price, each extra unit sold adds exactly the price to total revenue, so MR, AR and price coincide, as they do for a price-taking firm in perfect competition.

  1. AMarginal revenue equals ₹50 and is equal to average revenueCorrect
  2. BMarginal revenue is below ₹50 because price must fall to sell more
  3. CAverage revenue is above ₹50 at 200 units
  4. DTotal revenue falls as more units are sold
  5. Marginal revenue is zero at every output level

Explanation

When price is constant, each extra unit adds exactly the price to total revenue. So MR = AR = price = ₹50. Option B describes a firm with a downward-sloping demand curve, such as a monopolist, not a price taker.

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