Question

A firm operating under conditions of perfect conditions will find that its ___________.

• A. marginal costs are more than its average costs
• B. average revenues are the same as its margins revenues
• C. marginal costs are below its average revenue
• D. marginal revenues will be higher than its available revenues

Answer 1

The correct option is B average revenues are the same as its margins revenues

In perfect competition, average revenue and marginal revenue remains the same because the price of the commodity remains the same throughout the specified period due to which average revenue is equal to the price for a given amount of output and marginal revenue is also equal to price as total revenue changes only when there is any change in the quantity of the commodity sold.

Average Revenue = total revenue/total quantity

= price x quantity / quantity

= Price.

Marginal revenue = change in total revenue/ change in quantity sold

= price x change in quantity sold/ change in quantity sold

= Price.

Therefore, Average revenue = Marginal revenue.