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Question -

What is the relation between market price and average revenue of a price taking firm (i.e. perfectly competitive firm)?



Answer -

The average revenue (AR) of a firm is defined as total revenue per unit of output sold. Let a firmтАЩs output be Q and the market price be P, then TR equals P x Q. Hence,

In other words, for a price-taking firm, average revenue equals the market price.

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