Question

In a particular perfectly competitive industry, a firm faces a short run cost function of C = 0.04q² + 5q + 500. In the short run the market price is $30. What is the firm’s marginal revenue (MR)?

Answer 1

In perfect competition, there are many firms in the market dealing with the homogeneous product at a price fixed by the market.

Hence in perfect competition firms are price taker so the price in this marker remains same at every output.

For eg if the market price is $10 then it will remain $10 at every output

Output	Price
1	$10
2	$10
3	$10

Marginal revenue is the change in total revenue when additional units are sold

Marginal revenue = Change in Total Revenue / Change in Output

Output	Price	Total revenue	Marginal revenue
1	$10	10	10
2	$10	20	10
3	$10	30	10

For example marginal revenue at 2 units of output

Marginal revenue = 20 - 10 / 2 - 1

Marginal revenue = 10

Hence we can conclude that in perfect competition price and marginal revenue both are equal

Now coming to the answer if the market price is $30 then marginal revenue will be equal to $30