# Falero is one of more than a hundred perfectly competitive firms in San Francisco that produce small cardboar

Falero is one of more than a hundred perfectly competitive firms in San Francisco that produce small cardboard

• In the question it is given that the firm is perfectly competitive and we know that in perfect competition price is determined by the industry as it is a price maker and we can see in the first graph price is determined where market demand is equal to market supply then we can identify that price is \$5.
• Now as we know that same price will prevail in the firm and in perfect competition firm is price
• taker and demand curve is perfectly elastic i.e horizontal to the x asis. So the curve is like
• so the horizontal line in the second graph at price \$5 is the Falero’s demand curve for small cardboard boxes.
 Qyantity(Q) price (P) Total revenue(TR= PXQ) Marginal revenue (MR= $\Delta$TR/$\Delta$Q) Average Revenue (AR= TR/Q) 0 5 5×0=0 – – 1 5 5×1=5 5/1=5 5/1=5 2 5 5×2=10$>$ 5/1=5 10/2=5 3 5 5×3=15$>$ 5/1=5 15/3=5
• As we can see from the above graph that in the firm market demand curve is horizontal at horizontal demand curve Demand curve= P=AR=MR and we can also verify it from the above table that price , MR and AR values are same it means that they are identical so demand curve is identical to its marginal revenue curve.

Asked on May 18, 2017 in