Refer to Table 14-1. Over which range of output is average revenue equal to price?

• A. At no level of output, because average revenue always differs from price.
• B. Only at the output level where marginal cost equals marginal revenue.
• C. At all levels of output, because the firm is a price taker in a perfectly competitive market.
• D. Only at the output level where total revenue is maximized.

Answer: (C)

Verified step by step guidance

1. Understand the concept of average revenue (AR) and price in the context of market structures. Average revenue is defined as total revenue divided by quantity sold, and in many cases, it represents the revenue per unit sold.
2. Recall that in a perfectly competitive market, the firm is a price taker, meaning it cannot influence the market price and must accept the prevailing market price for its product.
3. Recognize that for a price-taking firm, the price remains constant regardless of the quantity sold, so the average revenue (AR) equals the price (P) at every level of output.
4. Contrast this with other market structures where price may vary with output, causing average revenue to differ from price except at specific points.
5. Conclude that in a perfectly competitive market, average revenue equals price at all levels of output because the firm sells each unit at the same market price.