2. The demand curve facing a competitive firm The following graph shows the dail

Question

2. The demand curve facing a competitive firm The following graph shows the daily market for small cardboard boxes in Detroit 10 Demand Supply 0 123 4 5 6 7 89 10 QUANTITY (Millions of small boxes) Suppose that Talero is one of more than a hundred competitive firms in Detroit that produce such cardboard boxes Based on the preceding graph showing the daily market demand and supply curves, the price Telero must take as given is Fut in the price and the total, marginal, and average revenue Talero earns when it produces o, 1, 2 or 3 boxes each day. Quantity Price (Boxes) (Dollars per box) (Dollars) Total Revenue Marginal Revenue (Dollars) Average Revenue (Dolars per baxj The demand curve that Talero faces is identical to which of its other curves? Check all that apply Marginal cost curve Marginal revenue curve

Explanation / Answer

Ans:

In a competitive market the firms are price takers.They need to sell at the price determined by the market regardless of the quantity they produce.

Total revenue = price * quantity

Marginal revenue is the additional revenue from selling a additional unit of product. In case of a competitive firm price is equal to marginal revenue.

Average revenue = Total revenue / quantity.

1) The price Talero must take as given is $5 per box

2) Table showing price,total,marginal,average revenue.

2) Following will apply

Marginal revenue curve

Average revenue curve

Quantity Price($ per box) Total Revenue($) Marginal revenue($) Average Revenue($ per box) 0 $5 0 0 0 1 $5 $5 $5 $5 2 $5 $10 $5 $5 3 $5 $15 $5 $5

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