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Health Economics-Module 6-Assignment

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Q 1. Prove algebraically and diagrammatically that in perfectly competitive markets price, marginal revenue, and average revenue are equal. 2. Firms operating in highly competitive markets are very efficient. Do you agree with this? Show me that by using appropriate algebraic and diagrammatic analysis. 3. The long-term profit maximizing situation for a firm in a perfectly competitive market is reduced to zero profits. Why? Explain.

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In a perfectly competitive market the price of the product or service would be the same irrespective of the quantity sold. This is one of the reasons the price, marginal revenue and the average revenue of a competitive market is equal. This can be explained in the following table: Quantity Price TR MR AR 5 100 500 100 15 100 1500 100 100 20 100 2000 100 100 32 100 3200 100 100 45 100 4500 100 100 52 100 5200 100 100 55 100 5500 100 100 60 100 6000 100 100 70 100 7000 100 100 100 100 10000 100 100