Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Theory of Firms under Perfect Competition

Question:

Which of these are true about MR in a perfectly competitive market?
a) it is the increase in total revenue for a unit increase in the firm's output.
b) If TR from sale of 200 shoes is Rs 5,000 and TR from sale of 201 shoes is Rs 5,200, them MR is Rs 200.
c) MR=AR=Price

Options:

a, b and c

a and b

b and c

c and a

Correct Answer:

a, b and c

Explanation:

The correct answer is Option 1:a, b and c

Let's analyze each statement:

  • a) it is the increase in total revenue for a unit increase in the firm's output.

    • This is true. This is the definition of marginal revenue.
  • b) If TR from sale of 200 shoes is Rs 5,000 and TR from sale of 201 shoes is Rs 5,200, them MR is Rs 200.

    • This is true. MR = Change in TR / Change in Quantity = (5200 - 5000) / (201 - 200) = 200 / 1 = 200.
  • c) MR=AR=Price

    • This is true. In a perfectly competitive market, individual firms are price takers. This means they can sell any quantity at the prevailing market price. Therefore, the price remains constant regardless of the quantity sold by a single firm. Thus, marginal revenue (MR), average revenue (AR), and the market price are all equal. Since price remains constant, every additional unit sold adds the same amount to TR, so MR = AR = P.

Therefore, all three statements are true.