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Exhibit 5. Total Revenue, Average Revenue, and Marginal Revenue under Perfect Competition
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Exhibit 5 graphically displays the revenue data from perfect competition. For an individual firm operating in a market setting of perfect competition, MR equals AR and both are equal to a price that stays the same across all levels of output. Because price is fixed to the individual seller, the firm’s demand curve is a horizontal line at the point where the market sets the price. In Exhibit 5, at a price of 100, P1 = MR1 = AR1 = Demand1. Marginal revenue, average revenue, and the firm’s price remain constant until market demand and supply factors cause a change in price. For instance, if price increases to 200 because of an increase in market demand, the firm’s demand curve shifts from Demand1 to Demand2 with corresponding increases in MR and AR as well. Total revenue increases from TR1 to TR2 when price increases from 100 to 200. At a price of 100, total revenue at 10 units is 1,000; however, at a price of 200, total revenue would be 2,000 for 10 units.
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