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Why does a Perfect Competition firms demand curve is also its marginal revenue curve?
Teuri
Yes - what you must remember is that a firm's demand curve in perfect competition is its average revenue curve. Average revenue = price x quantity / quantity = price. The demand curve shows the quantity demanded at varying prices and this is exactly what the average revenue curve will do.
Because there are so many sellers in the market, no one firm has enough market power to influence price (if a firm tried to raise price consumers would move to different suppliers; nobody would buy the good), therefore price is determined by industry supply and demand, and a firm can produce any quantity at this price . This means that the firm faces a horizontal average revenue (demand curve) and if average revenue is constant, this means total revenue is increasing at a constant rate, and therefore marginal revenue is constant as well.
Wiki User
∙ 14y ago
Anonymous
AnswerFor a perfectly competitive firm with no market control, the marginal revenue curve is a horizontal line. Because a perfectly competitive firm is a price taker and faces a horizontal demand curve, its marginal revenue curve is also horizontal and coincides with its average revenue (and demand) curve.
Yes - what you must remember is that a firm's demand curve in perfect competition is its average revenue curve. Average revenue = price x quantity / quantity = price. The demand curve shows the quantity demanded at varying prices and this is exactly what the average revenue curve will do.
Because there are so many sellers in the market, no one firm has enough market power to influence price (if a firm tried to raise price consumers would move to different suppliers; nobody would buy the good), therefore price is determined by industry supply and demand, and a firm can produce any quantity at this price . This means that the firm faces a horizontal average revenue (demand curve) and if average revenue is constant, this means total revenue is increasing at a constant rate, and therefore marginal revenue is constant as well.
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Why do the demand and marginal revenue curves coincide?
Because in Pure Competition, Demand equals Price, and Price equals Marginal Revenue;hence, Demand equals Marginal revenue.
Why is it that firms can earn profits in the long run in monopoly and oligopoly but not in monopolistic competition and perfect competition?
Because monopolistically competitive firms have an optimal production allocation at monopoly values: marginal revenue = marginal cost, marking-up to the demand function. When competition is not perfect, marginal revenue does not equal demand but is always below it on a Cartesian plane, so the optimal production value of a monopolistically competitive firm is both less and at a higher price than a perfectly competitive one.
Why is the marginal revenue curve the same as its demand curve?
The marginal revenue curve describes the incremental change in revenue (that is, price*units sold). The MR is not always equivalent to its demand curve. The more perfect competition is, the closer demand approaches the MR. This is because, in perfect competition, firms sell at the MC = MR = P criterion. In the opposite case, monopoly, MR always lies under of demand, and firms achieve monopoly profits by choosing a production quantity where MC = MR and charging a price mark-up.
When demand is perfectly elastic what happens to marginal revenue?
When Demand is perfectly elastic, Marginal Revenue is identical with price.
Relationship between Marginal revenue and Demand curve?
marginal revenue always lies behind the demand curve,and when demand increases marginal revenue also increases.demand curve is used to determine price of a commodity.
Why do the demand and marginal revenue curves coincide?
Because in Pure Competition, Demand equals Price, and Price equals Marginal Revenue;hence, Demand equals Marginal revenue.
Why is it that firms can earn profits in the long run in monopoly and oligopoly but not in monopolistic competition and perfect competition?
Because monopolistically competitive firms have an optimal production allocation at monopoly values: marginal revenue = marginal cost, marking-up to the demand function. When competition is not perfect, marginal revenue does not equal demand but is always below it on a Cartesian plane, so the optimal production value of a monopolistically competitive firm is both less and at a higher price than a perfectly competitive one.
Why is the marginal revenue curve the same as its demand curve?
The marginal revenue curve describes the incremental change in revenue (that is, price*units sold). The MR is not always equivalent to its demand curve. The more perfect competition is, the closer demand approaches the MR. This is because, in perfect competition, firms sell at the MC = MR = P criterion. In the opposite case, monopoly, MR always lies under of demand, and firms achieve monopoly profits by choosing a production quantity where MC = MR and charging a price mark-up.
When demand is perfectly elastic what happens to marginal revenue?
When Demand is perfectly elastic, Marginal Revenue is identical with price.
Relationship between Marginal revenue and Demand curve?
marginal revenue always lies behind the demand curve,and when demand increases marginal revenue also increases.demand curve is used to determine price of a commodity.
How to use the concept of price elasticity of demand to maximize revenue?
Price elasticity of demand is a way to determine marginal revenue. Optimal revenue and, more importantly, optimal profit will occur to the point when marginal revenue = marginal cost, or the price elasticity of demand < 1.
Profit maxiamisation in a perfect economy?
Profit maximization occurs when the firm produces /sets their price at the intersection of the marginal cost curve and the horizontal MR DARP curve (marginal revenue, demand, average revenue, price)
What is the relationship between price elasticity of demand and the monopolist's revenue?
marginal revenue is negative where demand is inelastic
Under perfect competition is average revenue curve elastic or inelastic?
Under Perfect Competition the demand curve is perfectly elastic. I don't know if that helps but it might
Why average revanue is equal to marginal revanue in imperfect competiton?
Average Revenue (AR) is equals to Marginal Revenue (MR) in Perfect competition (PC) not imperfect competition. AR can be derived from the formula= Total revenue(TR) / Quantity. Since TR = Price x Quantity, the formula now will be Price x Quantity/ Quantity and naturally, AR equals to Price. Marginal Revenue can be measured by the formula= Change in total revenue/ Change in quantity (which is 1). Since the change in total revenue will be equals to the price of the product, MR in this case will be the Price of the product. From here we can see that Price = MR = AR = Demand.
If marginal revenue product capital increases the demand or supply curve?
Demand.
What is the Concept of revenue?
Average revenue (AR): total revenue per unit of a product sold; Total revenue (TR): total number of dollars received by a firm or firm from the sale of a product; Marginal revenue (MR):additional revenue received result from the sale of an extra unit of product; Under perfect competition P=AR=MR and the firm's demand curve is flat.
