Question

In pure competition, if the first unit of output sold increases total revenue from $0 to $131, marginal revenue for that unit is $131. If the second unit sold increases total revenue from $131 to $262, marginal revenue is again $131. The third unit sold increases total revenue to $______ and marginal revenue is now $______.

Multiple choice question.

131; 393
393; 131
393; 262
131; 131

Answer 1

In pure competition, with a constant marginal revenue of $131 per unit, the third unit sold increases total revenue to $393 and the marginal revenue remains $131.

Step-by-step explanation:

In the context of pure competition, marginal revenue is the additional revenue gained from selling one more unit of output. Given that the first unit of output increased total revenue from $0 to $131, and the second unit from $131 to $262, we can infer that the marginal revenue is constant at $131 per unit because of the perfectly elastic demand curve that is characteristic of pure competition markets. Since each additional unit sold at the market price adds the same amount to the total revenue, the third unit sold will increase total revenue from $262 to $393. Therefore, the third unit's marginal revenue remains consistent at $131.