What is the relation between market price and marginal revenue of a price-taking firm?

Marginal revenue is defined as the change in the total revenue that occurs due to the sale of one more unit of output. It is calculated as

MRn = TRn − TRn − 1


MRn = Marginal revenue due to nth unit of output

TRn = Total revenue due to n units of output

TRn − 1 = Total revenue due to (n − 1) units of output

Suppose that the market price is P

MRn = TRn − TRn1

= PQnP (Qn − 1)

MR = PQn − PQn+ P

MR = P

Thus, for a perfect competitive firm, marginal revenue is equal to the market price per unit of output.

  • 2
What are you looking for?