For a price-taking firm, marginal revenue is the addition to total revenue from

Question

For a price-taking firm, marginal revenue is the addition to total revenue from producing one more unit of output. decreases as the firm produces more output. is equal to price at any level of output. both a and h both a and c In a perfectly competitive industry the market price is $25. A firm is currently producing 10,000 units of output; average total cost is $28. marginal cost is $20, and average variable cost is $20. The firm should raise price because the firm is losing money. keep output the same because the firm is producing at minimum average variable cost. produce more because the next unit of output increases profit by $5. produce less because the next unit of output decreased profit by $3. shut down because the firm is losing money.

Explanation / Answer

A Price-taking firm is one who accepts the price as provided by industry.

A price-taking firm can sell any amount it wants at the given price.

Since, it can sell any amount at given price, each additional unit it sell brings in revenue which is equal to price.

For example, suppose, a price-taking firm can sell as much as it wants at $2 per unit. If firm sells 1 unit, its total revenue is ($2*1) $2. If firm sells 2 units, its total revenue is ($2*2) $4. Thus, addition total revenue that is marginal revenue is $2 which is equal to price. If firm increase its sale to 3 units, it total revenue increases to $6 ($2*3). Addition to total revenue is again $2 which is equal to price. Thus, it can be seen that marginal revenue is equal to price at each level of output.

So, in case of price-taking firm, marginal revenue that is addition to total revenue is equal to price at any level of output.

Hence, the correct answer is option (c).

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