Question

In pure competition, if the first unit of output sold increases total revenue from $0 to $131, marginal revenue for that unit is $131. If the second unit sold increases total revenue from $131 to $262, marginal revenue is again $131. The third unit sold increases total revenue to $______ and marginal revenue is now $______.

Answer 1

The third unit increases total revenue to $393 and marginal revenue is now $131.

A pure competition is a market where there are numerous buyers and sellers of identical goods and services. The price in a pure competition is determined by market forces -the forces of demand and supply. There are no barriers to entry or exit of companies into a pure competition market.  

In a pure competition, the price of the good is equal to marginal revenue. In the long run, companies in  a pure competition earn no economic profit. If this is not the case in the short run, in the long run, firms would enter into the industry. This would drive economic profits down to zero.

Total revenue increase by quantity sold.

Total revenue = price x quantity sold.

The price is $131

Total revenue when 3 units are sold = $131 x 3 = $393.

Marginal revenue is equal to the price of the good. So, marginal revenue would be $131.

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