Table 8.1. The marginal revenue curve shows the additional revenue gained from selling one more unit. As

mentioned before, a firm in perfect competition faces a perfectly elastic demand curve for its product—that is,

the firm’s demand curve is a horizontal line drawn at the market price level. This also means that the firm’s

marginal revenue curve is the same as the firm’s demand curve: Every time a consumer demands one more

unit, the firm sells one more unit and revenue increases by exactly the same amount equal to the market price.

In this example, every time the firm sells a pack of frozen raspberries, the firm’s revenue increases by $4.

Table 8.2 shows an example of this. This condition only holds for price taking firms in perfect competition

where:

The formula for marginal revenue is:
192 8 • Perfect Competition

Price Quantity Total Revenue Marginal Revenue

$4

$4

$4

$4

1

2

3

4

TABLE 8.2

$4

$8

$12

$16

-

$4

$4

$4
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