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For a perfectly competitive firm, marginal revenue equals what?
AIts average total cost
BIts own marginal cost
CTotal revenue over total cost
DThe market price it faces
Answer & Solution
Correct answer: D. The market price it faces
1. Because a price-taking firm sells every unit at the same market price, each additional unit sold adds exactly that price to revenue.
2. That means marginal revenue equals price for a perfectly competitive firm.
3. Average total cost is a cost concept, not a revenue concept, so it does not equal marginal revenue.
4. Marginal revenue equals marginal cost only at the specific profit-maximizing quantity, not at every quantity, so 'always' is too strong a claim.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.2 | How Perfectly Competitive Firms Make Output Decisions_
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