A firm sells its good in a perfectly competitive market at Rs 8 per unit. Which of the following pairs is correctly matched?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Output 5 units — Total revenue Rs 40
For a price-taking firm, TR = p × q, and both AR and MR equal the price, here Rs 8.
Option (1) Output 6 units — Marginal revenue of the 6th unit Rs 48 — Incorrect. The 6th unit is sold at Rs 8, so MR = Rs 8. Rs 48 is the TR of 6 units.
Option (2) Output 0 units — Total revenue Rs 8 — Incorrect. When nothing is sold, TR is zero.
Option (3) Output 5 units — Total revenue Rs 40 — Correct. TR = 8 × 5 = Rs 40.
Option (4) Output 5 units — Average revenue Rs 40 — Incorrect. AR = 40 ÷ 5 = Rs 8, the price.
NCERT (2026-27): “4.2 Revenue … A firm earns revenue by selling the good that it produces in the market. Let the market price of a unit of the good be p. Let q be the quantity of the good produced, and therefore sold, by the firm at price p. Then, total revenue (TR) of the firm is defined as the market price of the good (p) multiplied by the firm’s output (q).” “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.” |