firm, MR=P=AR The marginal revenue curve has another meaning as well It is the demand curve facing a perfectly competitive firm Consider the case of a single radish producer, Tony Gortari We assume that the radish market is perfectly competitive; Mr Gortari runs a perfectly competitive firm Suppose the market price of radishes is $0.40 per pound How many pounds of radishes can Mr Gortari sell at this price? The answer comes from our assumption that he is a price taker: He can sell any quantity he wishes at this price How many pounds of radishes will he sell if he charges a price that exceeds the market price? None His radishes are identical to those of every other firm in the market, and everyone in the market has complete information That means the demand curve facing Mr Gortari is a horizontal line at the market price as illustrated in Figure 9.5 "Price, Marginal Revenue, and Demand" Notice that the curve is labeled d to distinguish it from the market demand curve, D, inFigure 9.3 "The Market for Radishes" The horizontal line in Figure 9.5 "Price, Marginal Revenue, and Demand" is also Mr Gortari’s marginal revenue curve, MR, and his average revenue curve,AR It is also the market price, P Of course, Mr Gortari could charge a price below the market price, but why would he? We assume he can sell all the radishes he wants at the market price; there would be no reason to charge a lower price Mr Gortari faces a demand curve that is a horizontal line at the market price In our subsequent analysis, we shall refer to the horizontal line at the market price simply as marginal revenue We should remember, however, that this same line gives us the market price, average revenue, and the demand curve facing the firm Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 479