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

Question

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.

| Q | Price | TR | AR | MR |
|---|---|---|---|---|
| 1 | 25 | | | |
| 2 | 25 | | | |
| 3 | 25 | | | |
| 4 | 25 | | | |
| 5 | 25 | | | |

Accepted Answer

Since the firm sells at the fixed price of Rs. 25 regardless of quantity, $TR=P	imes Q=25Q$:
$$TR_1=25,\ TR_2=50,\ TR_3=75,\ TR_4=100,\ TR_5=125$$

$AR=TR/Q$ at each output level:
$$AR_1=25,\ AR_2=25,\ AR_3=25,\ AR_4=25,\ AR_5=25$$

$MR=\Delta TR/\Delta Q$, the difference between successive TR values (taking $TR_0=0$):
$$MR_1=25-0=25,\ MR_2=50-25=25,\ MR_3=75-50=25,\ MR_4=100-75=25,\ MR_5=125-100=25$$

The completed schedule is:

| Q | Price | TR | AR | MR |
|---|---|---|---|---|
| 1 | 25 | 25 | 25 | 25 |
| 2 | 25 | 50 | 25 | 25 |
| 3 | 25 | 75 | 25 | 25 |
| 4 | 25 | 100 | 25 | 25 |
| 5 | 25 | 125 | 25 | 25 |

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.
> [!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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