Question 6 of 25beginner💡 UnderstandVery Short1 mark
What is the relation between market price and marginal revenue of a price-taking firm?
Correct Answer
For a price-taking firm, marginal revenue equals the market price (MR = p).
Exercise: EXERCISES | Q: 6 | (Page 15)
For More Understanding
Explanation
The textbook explicitly states that for a price-taking firm, marginal revenue is equal to market price. The mathematical derivation shows that when output changes from q₁ to q₂ at market price p, MR = p(q₂-q₁)/(q₂-q₁) = p. The intuition is that when a firm increases output by one unit, this extra unit is sold at the market price, so the increase in total revenue (MR) equals the market price.