A perfectly competitive market in an economy is categorized by the following features.
(A) Firms are price-takers.
(B) Average revenue is equal to market price.
(C) Market is perfectly inelastic.
(D) Marginal revenue is equal to market price.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (D) only
(A) Firms are price-takers – Correct. In a perfectly competitive market, individual firms cannot influence the market price; they accept the price determined by the market.
(B) Average revenue is equal to market price – Correct. In perfect competition, AR = TR/Q = Price, since all units are sold at the same market price.
(C) Market is perfectly inelastic – Incorrect. This is not a feature of perfect competition. In fact, demand faced by an individual firm is perfectly elastic, not inelastic.
(D) Marginal revenue is equal to market price – Correct. Since price remains constant for a firm in perfect competition, MR = Price.