Why are marginal revenue and price equal for a firm operating in a perfectly competitive market?

Question

Question

Why are marginal revenue and price equal for a firm operating in a perfectly competitive market?

Answer 1

Answer #1

In a perfectly competitive market, each firm acts as a price taker.

This means that each firm in the competitive market has to accept the price as decided by the market.

So,

Each unit sold by the firm brings in a revenue equal to the given market price.

The additional revenue earned through selling of each additional unit is referred to as the marginal revenue.

Since, this additional revenue earned is always equal to the given market price.

Therefore,

The marginal revenue and the price equal for a firm operating in a perfectly competitive market.

Answer 2

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