Which of the following statements has to be true in a perfectly competitive market? A) A...
Which of the following statements has to be true in a perfectly competitive market?
A) A firm's marginal revenue equals price.
B) A firm's average total cost is above price in the long run.
C) A firm's average fixed cost rises in the short run.
D) A firm's average variable cost is higher than price in the long run.
E) Large firms have lower costs than small firms
Homework Answers
Which of the following statements has to be true in a perfectly competitive market?
Answer
A) A firm's marginal revenue equals price.
In perfect competition market the firms are price takers. The industry determines the price and the firms has to follow the price. Firms cannot change the price. Whatever the price determined by the industry, the firms has to sell all the units of the commodity at the given price. It otherwise means that average revenue (AR) or price is constant for all the units. When the average revenue is same for all the units, the average revenue will be equal to marginal revenue. In perfect competition market the firms faces a horizontal demand curve where AR=MR.
So the correct answer will be
(A) A firm's marginal revenue equals price.
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