Final answer:
In perfect competition, a firm's marginal revenue is the change in total revenue divided by the change in output, equal to price, and the additional revenue for each extra unit sold, so the answer is option 4) 'All of the above'.
Step-by-step explanation:
In perfect competition, a firm's marginal revenue is defined by several factors. Firstly, it is the change in the firm's total revenue divided by the change in the firm's output. Secondly, in such a market structure, the marginal revenue is equal to the price of the product, as the firm is a price taker and cannot influence the market price.
Lastly, it represents the additional revenue the firm earns when it sells one more unit of output. Therefore, the correct answer to the question is that in perfect competition, a firm's marginal revenue is 'All of the above' - options 1, 2, and 3 together accurately describe what marginal revenue is for a firm in perfect competition.
When a perfectly competitive firm increases its output, the total revenue it earns increases at a constant rate, since each unit of output is sold at the market price, which does not change with the firm's level of output. Consequently, marginal revenue remains constant and equal to the market price for each additional unit sold.
This is in stark contrast with a monopolist where marginal revenue differs from the price due to the price change with varying levels of output.
The concept that marginal revenue equals marginal cost (MR = MC) is critical for a perfectly competitive firm to find its profit-maximizing level of output. Since in perfect competition, the marginal revenue equals the market price, the firm's profit-maximizing condition simplifies to setting price equal to marginal cost (P = MC).