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= TR/Q)||Average Revenue (AR= TR/Q)|
- 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.