What is the relation between market price and marginal revenue of a price taking firm?
Marginal revenue is the change in revenue with every additional quantity of output sold. It can be calculated with help of following formula
MR = TRn+1 - TRn
Where,
MR - Marginal Revenue
TRn+1 - Total revenue on sale of (n+1) quantity of output
TRn - Total revenue on sale of (n) quantity of output
In case of a price taking firm the market price is equal to marginal revenue. Therefore, in perfectly competitive market -
P = AR= MR
With help of following table we can understand this
Price | Quantity Sold | Total Revenue (TR) | Marginal Revenue (MR) |
10 10 10 10 10 | 1 2 3 4 5 | 10 20 30 40 50 | 10 10 10 10 10 |