Question

1. For a firm in a perfectly competitive market, the price of the good is always

A). equal to marginal revenue.
B). equal to total revenue.
C). greater than average revenue.
D). equal to the firm’s efficient scale of output

Answer 1

A). equal to marginal revenue.

Step-by-step explanation:

A perfect competition is characterized by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.

In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.

Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.

Price = marginal revenue = average revenue