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

 

 

answer:

  • 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= \DeltaTR/\DeltaQ) 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.

 

 

 

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