Assertion (A): For a perfectly competitive firm, marginal revenue equals the market price.
Reason (R): When the firm increases its output by one unit, this extra unit is sold at the market price.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): For a perfectly competitive firm, marginal revenue equals the market price. — True. MR is the rise in total revenue from one more unit of output.
Reason (R): When the firm increases its output by one unit, this extra unit is sold at the market price. — True. A price-taking firm sells every unit at the same market price.
Why R explains A?
The extra unit brings in the market price, and nothing else changes. So the rise in total revenue, which is MR, is the market price itself.
NCERT (2026-27): “4.2 Revenue … The marginal revenue (MR) of a firm is defined as the increase in total revenue for a unit increase in the firm’s output. … Thus, for the perfectly competitive firm, MR=AR=p In other words, for a price-taking firm, marginal revenue equals the market price. Setting the algebra aside, the intuition for this result is quite simple. When a firm increases its output by one unit, this extra unit is sold at the market price. Hence, the firm’s increase in total revenue from the one-unit output expansion – that is, MR – is precisely the market price.” |