OnRamps Economics College Practice Exam 2026 – The Complete Study Guide for Success!

In a perfectly competitive market, firms are price takers and face a horizontal demand curve at the market price. The revenue from selling one more unit is simply the market price, so the marginal revenue equals price. Since total revenue is TR = P × Q and price is constant, MR = d(TR)/dQ = d(PQ)/dQ = P. So marginal revenue equals the market price. This is why the MR curve is a horizontal line at the price. In other market structures, adding output can require lowering the price on all units, so MR can be below price, but not in perfect competition.