Question

In perfect competition, the marginal revenue of an individual firm ________.

• A. equals the price of the product.
• B. is positive but less than the price of the product.
• C. exceeds the price of the product.
• D. is zero.

Answer 1

The correct option is A equals the price of the product.

All producers are price takers and cannot influence the price. They simply accept the singular price determined in the market. Any variation in its output will have a negligible effect on the total supply and effectively the market price, that the effect can safely be assumed to be 0. The firm may choose to sell additional output at the same industry price and thus the marginal revenue (extra revenue earned) will always be equal to price.