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In a perfectly competitive market, price per unit to the purchaser is synonymous with per unit or revenue to a seller.

Question

In a perfectly competitive market, price per unit to the purchaser is synonymous with

per unit or
revenue to a seller.

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Solution

In a perfectly competitive market, the price per unit to the purchaser is synonymous with the per unit revenue to a seller. This is because in a perfectly competitive market, sellers are price takers, meaning they accept the market price as given.

Here are the steps to understand this:

  1. In a perfectly competitive market, there are many buyers and sellers, and each seller sells a homogeneous or identical product.

  2. Because there are many sellers, no single seller can influence the market price. They must accept the price determined by the market demand and supply, hence they are called price takers.

  3. The price per unit that buyers pay is the same as the price per unit that sellers receive. This is because there are no transaction costs in a perfectly competitive market.

  4. Therefore, the price per unit to the purchaser is the same as the per unit revenue to the seller. In other words, the price per unit is synonymous with the seller's marginal revenue and average revenue.

  5. This is a unique characteristic of a perfectly competitive market. In other market structures, such as monopoly or monopolistic competition, the price per unit to the purchaser is not the same as the per unit revenue to the seller.

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