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seekingexplaination: 3 months ago

Why marginal revenue=demend?

in the book I read, it says that in perfect competitive market, to a firm, marginal revenue=demend. Why? I cannot figure out. Can you help me?

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Answer 1

disc: 3 months ago via iPhone

In perfect competition MR = demand because the elasticity of demand is infinitely elastic. That is, it's a straight horizontal line. By definition MR has to be the same because the marginal or extra revenue from selling one more unit has to be along the horizontal demand curve. Try drawing a horizontal demand curve and it should be clear to you.
This only happens in a perfectly competitive world

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seekingexplaination: 3 months ago

the marginal or extra revenue from selling one more unit has to be along the horizontal demand curve.
I just cannot understand this point clearly
BTW, I am confused that why the demend curve intercepts the y-axis at Price in a competitive market to a firm.

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Answer 2

LucyNJersey: 3 months ago

Marginal revenue is equal to demand because it is affected by similar factors that affect demand of a commodity. Check out http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=monopoly,+marginal+revenue+and+demand+elasticity for more details.

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