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THREE-SECTOR, THREE-MARKET CIRCULAR FLOW: A circular flow model of the macroeconomy containing three sectors (business, household, and government) and three markets (product, factor, and financial) that illustrates the continuous movement of the payments for goods and services between producers and consumers, with particular emphasis on taxes and government purchases. Other circular models are two-sector, two-market circular flow; two-sector, three-market circular flow; and four-sector, three-market circular flow.

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MARGINAL REVENUE CURVE, PERFECT COMPETITION:

A curve that graphically represents the relation between the marginal revenue received by a perfectly competitive firm for selling its output and the quantity of output sold. Because a perfectly competitive firm is a price taker and faces a horizontal demand curve, its marginal revenue curve is also horizontal and coincides with its average revenue (and demand) curve. A perfectly competitive firm maximizes profit by producing the quantity of output found at the intersection of the marginal revenue curve and marginal cost curve.
Perfect competition is a market structure with a large number of small firms, each selling identical goods. Perfectly competitive firms have perfect knowledge and perfect mobility into and out of the market. These conditions mean perfectly competitive firms are price takers, they have no market control and receive the going market price for all output sold.

The marginal revenue curve reflects the degree of market control held by a firm. For a perfectly competitive firm, the marginal revenue curve is a horizontal, or perfectly elastic, line. For a monopoly, oligopoly, or monopolistically competitive firm, the marginal revenue curve is negatively sloped and lies below the average revenue (demand) curve.

Marginal Revenue Curve,
Perfect Competition
Marginal Revenue Curve, Perfect Competition
Marginal revenue is commonly represented by a marginal revenue curve, such as the one labeled MR and displayed in the exhibit to the right. This particular marginal revenue curve is that for zucchini sales by Phil the zucchini grower, a presumed perfectly competitive firm.

The vertical axis measures marginal revenue and the horizontal axis measures the quantity of output (pounds of zucchinis). Although quantity on this particular graph stops at 10 pounds of zucchinis, the nature of perfect competition indicates it could easily go higher.

This curve indicates that if Phil sells the first pound of zucchinis (an increase in production from 0 to 1), then his extra revenue is $4. However, if he sells his tenth pound (an increase in production from 9 to 10), then he also receives $4 of extra revenue. Should he sell his hundredth pound (an increase in production from 99 to 100), then he moves well beyond the graph, but his marginal revenue remains at $4.

Because Phil is a perfectly competitive firm, his marginal revenue curve is also his demand curve and his average revenue curve. All three curves coincide for perfect competition.

<= MARGINAL REVENUE CURVE, MONOPOLYMARGINAL REVENUE, MONOPOLISTIC COMPETITION =>


Recommended Citation:

MARGINAL REVENUE CURVE, PERFECT COMPETITION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: July 22, 2019].


Check Out These Related Terms...

     | marginal revenue | marginal revenue, perfect competition | marginal revenue curve, monopoly | marginal revenue curve, monopolistic competition | total revenue curve | average revenue curve | marginal cost curve | marginal product curve | marginal revenue product curve | marginal factor cost curve |


Or For A Little Background...

     | market structures | perfect competition | perfect competition characteristics | perfect competition and demand | monopoly | oligopoly | monopolistic competition | demand | demand price | law of demand | efficiency |


And For Further Study...

     | short-run production analysis | short-run analysis, perfect competition | long-run analysis, perfect competition | perfect competition and efficiency | breakeven output, perfect competition | profit curve, perfect competition | short-run production alternatives, perfect competition | profit maximization, perfect competition |


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