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Question
What is the relation between market price and average revenue of a price taking firm?
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"="TR"/Q`
We know that
TR = P × Q
`"AR"=(PxxQ)/Q`
AR = P
Thus, the market price and the average revenue are the same for a perfect competitive firm.
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Calculate the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs 10.
|
Quantity Sold |
TR |
MR |
AR |
|
0 |
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|
1 |
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|
2 |
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|
3 |
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|
4 |
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|
5 |
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|
6 |
