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Chapter 8: Q.16 (page 212)

How does a perfectly competitive firm calculate total revenue?

Short Answer

Expert verified

A perfective competitive firm can only sell a limited number of units.

Step by step solution

01

Definition

A perfectly competitive firm must accept the price prevailing in the market for its output as determined by market forces and it can not choose the price itself.

02

Explanation

A perfectly competitive firm can only choose the number of units it can sell. It implies that a firm is facing an inelastic demand curve because buyers are willing to purchase output at market price.

The quantity of output a perfectly competitive firm chooses to produce, along with market price, will determine the firm's total revenue. Thus, total revenue is equal to the quantity of output sold times the market price.

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Most popular questions from this chapter

Can you name five examples of perfectly competitive markets? Why or why not?

Since a perfectly competitive firm can sell as much as it wishes at the market price, why can the firm not simply increase its profits by selling an extremely high quantity?

What price will a perfectly competitive firm end up charging in the long run? Why?

Will a perfectly competitive market display productive efficiency? Why or why not?

Firms in a perfectly competitive market are said to be “price takers”—that is, once the market determines an equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?
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