How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?
What will be an ideal response?
They are all equal to each other. The market price for any firm equals average revenue. This can be verified by noting that average revenue = total revenue ÷ quantity = (price × quantity) ÷ quantity. Further, a perfectly competitive firm faces a horizontal demand curve at the market price which means that it does not need to reduce the price to sell more. Therefore, its marginal revenue equals price.
Economics
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