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Why does price equal marginal revenue for a firm in a perfectly competitive industry?
Wiki User
∙ 13y ago
In a perfectly competitive industry marginal revenue or (the cost to produce one more unit) stays constant
so for example a pencil costs 1 dollar to make at the 101st pencil it will still cost 1 dollar to make. the price at which it must sell it at is also one dollar because if the company decides to raise the price it will lose all of its consumers to another firm competing with them that sells pencils at 1 dollar. the firm would be able to sell nothing at a higher price because the market is so competitive
therefore, you can not raise the marginal revenue without raising the price and you cannot raise the price because the firm runs the risk of selling nothing therefore they stay equal.
A perfectly competitive firm takes the market price as given, (They cannot set the price at which they sell the item the other firms through supply and demand have already sorted that out) so the firm-specific demand curve is horizontal. The firm can sell all it wants at the market price, but would sell nothing if it charged a higher price.
Wiki User
∙ 13y ago
Wiki User
∙ 14y agoCoincidence. They are totally unrelated.
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Marginal cost equals marginal revenue?
If the firm operates in a perfectly competitive industry, profit is maximised at the ouput level where mc=mr.
What is a change to the total revenue resulting from the sale of one more unit of output in aa perfectly competitive from?
The change of total revenue per unit sold is known as marginal revenue. In a perfectly competitive firm, marginal revenue = marginal cost = price.
When demand is perfectly elastic what happens to marginal revenue?
When Demand is perfectly elastic, Marginal Revenue is identical with price.
How does a monopolistically competitive firm determine its profit-maximizing price?
price = marginal revenue. marginal revenue > average revenue. price > marginal cost. total revenue > marginal co
Why can price be substituted for marginal revenue in the MR equals MC rule?
It can be substituted because the industry would become purely competitive.
Marginal cost equals marginal revenue?
If the firm operates in a perfectly competitive industry, profit is maximised at the ouput level where mc=mr.
What is a change to the total revenue resulting from the sale of one more unit of output in aa perfectly competitive from?
The change of total revenue per unit sold is known as marginal revenue. In a perfectly competitive firm, marginal revenue = marginal cost = price.
When demand is perfectly elastic what happens to marginal revenue?
When Demand is perfectly elastic, Marginal Revenue is identical with price.
Are marginal revenue average revenue and price are all equal for a monopolist?
No, in a monopolistic market, marginal revenue is less than average revenue and price. This is because the monopolist must lower the price in order to sell more units, leading to a decline in revenue per unit.
How does a monopolistically competitive firm determine its profit-maximizing price?
price = marginal revenue. marginal revenue > average revenue. price > marginal cost. total revenue > marginal co
Why can price be substituted for marginal revenue in the MR equals MC rule?
It can be substituted because the industry would become purely competitive.
Price can be substituted for marginal revenue in the MR equal MC rule when an industry is purely competitive because price?
Is constant regardless of the quantity demanded.
Why monopoly is allocatively inefficient relative to perfectly competitive market?
A monopoly produces at a point where marginal revenue equals marginal cost, they don't charge this price, but charge a higher price that corresponds with the demand they face. Therefore they produce less and charge more than a competitive firm that equates the price to marginal cost.
Why is it that firms can earn profits in the long run in monopoly and oligopoly but not in monopolistic competition and perfect competition?
Because monopolistically competitive firms have an optimal production allocation at monopoly values: marginal revenue = marginal cost, marking-up to the demand function. When competition is not perfect, marginal revenue does not equal demand but is always below it on a Cartesian plane, so the optimal production value of a monopolistically competitive firm is both less and at a higher price than a perfectly competitive one.
Why is the demand curve the same as the marginal revenue curve for a perfectly competitive firm?
Because for a perfectly competetive firm since the demand curve is perfectly elastic even a slightest price change doesnt add any further demand..so there is no change in marinal revenue also.Since revenue is demand multiplied with cost of unit..the two curves are same.
Why does a Perfect Competition firms demand curve is also its marginal revenue curve?
AnswerFor a perfectly competitive firm with no market control, the marginal revenue curve is a horizontal line. Because a perfectly competitive firm is a price taker and faces a horizontal demand curve, its marginal revenue curve is also horizontal and coincides with its average revenue (and demand) curve. Yes - what you must remember is that a firm's demand curve in perfect competition is its average revenue curve. Average revenue = price x quantity / quantity = price. The demand curve shows the quantity demanded at varying prices and this is exactly what the average revenue curve will do.Because there are so many sellers in the market, no one firm has enough market power to influence price (if a firm tried to raise price consumers would move to different suppliers; nobody would buy the good), therefore price is determined by industry supply and demand, and a firm can produce any quantity at this price . This means that the firm faces a horizontal average revenue (demand curve) and if average revenue is constant, this means total revenue is increasing at a constant rate, and therefore marginal revenue is constant as well.
How do you find a monopolist's profit maximising...?
The monopolist's profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output. Indeed, the condition that marginal revenue equal marginal cost is used to determine the profit maximizing level of output of every firm, regardless of the market structure in which the firm is operating.
