Final answer:
The relationship between Marginal Revenue (MR) and Average Revenue (AR) is MR = AR in perfect competition, while Total Revenue (TR) increases by the amount of MR with each additional unit sold. Marginal Revenue is the additional revenue from selling one more unit, and Total Revenue is the cumulative total of all Marginal Revenues.
Step-by-step explanation:
The correct option :: a
Marginal Revenue (MR) is the additional revenue that a firm earns when it sells one more unit of a product. It is derived by dividing the change in Total Revenue (TR) by the change in quantity. For a firm operating under perfect competition, MR is equal to the AR because the firm is a price taker and the price does not change with the quantity sold. As for the relationship between Total Revenue (TR) and MR, for each additional unit sold, TR will increase by exactly the amount of the MR. Therefore, while MR is the revenue gained from selling one more unit, TR is the summation of MR across all units sold.
In the context of perfect competition, the correct option is (i) MR = AR; (ii) TR increases as MR is added to it.
Looking at an example, if a firm sells 100 units at a price of $5 each, AR will be $5, and so will MR if the firm sells an additional unit at the same price. Therefore, if the firm then sells a 101st unit, MR remains at $5, and TR increases by $5 from $500 to $505.