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Exercises · Q6
Q.

A firm operating under perfect competition sells its product at the prevailing market price of Rs. 25 per unit, whatever quantity it decides to produce and sell. Complete the following revenue schedule for output levels 1 to 5 units, and state what you notice about the AR and MR columns.

QPriceTRARMR
125
225
325
425
525
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✓ Free question

Since the firm sells at the fixed price of Rs. 25 regardless of quantity, TR=P×Q=25QTR=P\times Q=25Q:

TR1=25, TR2=50, TR3=75, TR4=100, TR5=125TR_1=25,\ TR_2=50,\ TR_3=75,\ TR_4=100,\ TR_5=125

AR=TR/QAR=TR/Q at each output level:

AR1=25, AR2=25, AR3=25, AR4=25, AR5=25AR_1=25,\ AR_2=25,\ AR_3=25,\ AR_4=25,\ AR_5=25

MR=ΔTR/ΔQMR=\Delta TR/\Delta Q, the difference between successive TR values (taking TR0=0TR_0=0):

MR1=25−0=25, MR2=50−25=25, MR3=75−50=25, MR4=100−75=25, MR5=125−100=25MR_1=25-0=25,\ MR_2=50-25=25,\ MR_3=75-50=25,\ MR_4=100-75=25,\ MR_5=125-100=25

The completed schedule is:

QPriceTRARMR
125252525
225502525
325752525
4251002525
5251252525

AR and MR are IDENTICAL to each other and to the price at every single output level — because the price never changes as output changes, every extra unit adds exactly the same Rs. 25 to total revenue, so both AR and MR stay locked at Rs. 25.

✓Final answer

TR: 25,50,75,100,125; AR = MR = Rs. 25 = Price at every output level, reflecting the perfectly competitive firm's horizontal demand curve.

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