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What do a firm’s Marginal Revenue (MR) and Demand curves look like in perfect competition? Draw...

  1. What do a firm’s Marginal Revenue (MR) and Demand curves look like in perfect competition? Draw them in a Quantity-Price/MR diagram (don’t forget to label the axes).
  2. Why do the MR and Demand curves look the way you draw? Briefly explain.
  3. Now add a Marginal Cost curve (MC) to the diagram you drew above. How is the profit-maximizing output in perfect competition determined? Mark this output as q* in the diagram.
  4. What is the price a firm in perfect competition will charge for its product? Is this price related to the output level of this particular firm? Why or why not?
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Answer #1

What do a firm’s Marginal Revenue (MR) and Demand curves look like in perfect competition?

Ans: it's horizontal.

Why do the MR and Demand curves look the way you draw? Briefly explain.

Ans: Perfectly competitive firms are price taker, so whatever the price decides by the market they have to sell on this price only.

MR is the extra revenue earn by firm with selling of extra unit so here it will also be same as one unit because there is same proce at any level of output. So MR curve and Demand curve will be same horizontal.

How is the profit-maximizing output in perfect competition determined?

Ans: profit maximising output is determined where MR equals to MC.

MR is the extra revenue generated by the firm with the selling of extra unit and MC is extara cost generate by the firm with producing extra unit. So if firm will produce when MR is less than MC than he will enjoy more cost than revenue and if he will produce where MR is greater than MC then he can not enjoy that extra revenue.

What is the price a firm in perfect competition will charge for its product?

Ans:

Firm will charge price as demand curve or as market price.

Is this price related to the output level of this particular firm? Why or why not?

Ans:

No!

Becouse at any level of output price will be same.

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