What is the relation between market price and average revenue of a price taking firm?

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Solution

Average Revenue is defined as the revenue per unit of the output sold. It is expressed as the ratio between total revenue and the output sold.

AR =

We know that

TR = P × Q

AR = P

Thus, the market price and the average revenue are the same for a perfect competitive firm.

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Similar questions

What is the relation between market price and marginal revenue of a price-taking firm?

How are the total revenue of a firm, market price, and the quantity sold by that firm related to each other?

Define marginal revenue. State the relation between marginal revenue and average revenue when a firm :

(i) is able to sell more quantity of output at the same price.

(ii) is able to sell more quantity of output only by lowering the price.

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