<p>The unstated assumption here is that there is no price discrimination by the selling firm. Even if it has pricing power, it simply posts a price <span class="math-container">$P$</span> and sells as many goods <span class="math-container">$Q$</span> as are demanded at that price. Revenue is then always <span class="math-container">$P\times Q$</span>. Average revenue is
<span class="math-container">$$
\frac{Revenue}{Quantity\: sold}=\frac{P\times Q}{Q}=P \: ,
$$</span>
which is the statement by Mankiw.</p>
<p>Of course, it would be different if the firm could price discriminate, i.e., sell to one set of buyers at price <span class="math-container">$P_1$</span> and to others at <span class="math-container">$P_2$</span> (as for example Amazon was rumored to do when it detects you are shopping from an Apple device). In that case, average revenue would be a quantity-weighted average of the two prices.</p>

CC BY-SA 4.0
2024-11-07T08:05:31.917Z
jpfeifer, thank you very much for your answer.
佐武五郎
CC BY-SA 4.0
2024-11-07T08:21:54.393Z
It would also be different under non-linear (also called 'non-uniform') pricing. Even if all consumers had the same price - Two-part tariffs with homogenous consumers are an example. So to state the assumption differently one could say that the assumption is that of linear pricing.
Jesper Hybel
CC BY-SA 4.0
2024-11-07T07:48:29.923Z
2024-11-07T07:48:29.923Z
jpfeifer
<p>I am reading &quot;Principles of Economics 9th Edition&quot; by N. Gregory Mankiw.</p>
<blockquote>
<p>A competitive market, sometimes called a perfectly competitive market, has two
characteristics:</p>
<ul>
<li>There are many buyers and many sellers in the market.</li>
<li>The goods offered by the various sellers are largely the same.</li>
</ul>
<p>As a result of these conditions, the actions of any single buyer or seller in the
market have a negligible impact on the market price. Each buyer and seller takes
the market price as given.</p>
</blockquote>
<blockquote>
<p>Column (4) in the table shows average revenue, which is total revenue [from
column (3)] divided by the amount of output [from column (1)]. Average revenue
tells us how much revenue a firm receives for the typical unit sold. In Table 1, you
can see that average revenue equals <span class="math-container">$\\\$6$</span>, the price of a gallon of milk. This illustrates
a general lesson that applies not only to competitive firms but to other firms as well.
Average revenue is total revenue <span class="math-container">$(P × Q)$</span> divided by the quantity <span class="math-container">$(Q)$</span>. <em><strong>Therefore,
for all types of firms, average revenue equals the price of the good.</strong></em></p>
<p>Column (5) shows marginal revenue, which is the change in total revenue from
the sale of each additional unit of output. In Table 1, marginal revenue equals
<span class="math-container">$\\\$6$</span>, the price of a gallon of milk. This result illustrates a lesson that applies only to
firms in competitive markets. Because total revenue is <span class="math-container">$P × Q$</span> and <span class="math-container">$P$</span> is fixed for a
competitive firm, when <span class="math-container">$Q$</span> rises by <span class="math-container">$1$</span> unit, total revenue rises by <span class="math-container">$P$</span> dollars. <em><strong>Therefore,
for competitive firms, marginal revenue equals the price of the good.</strong></em></p>
</blockquote>
<p>Mankiw wrote &quot;Therefore,
<strong>for all types of firms</strong>, average revenue equals the price of the good.&quot;<br />
Why did Mankiw write &quot;<strong>for all types of firms</strong>&quot; instead of &quot;<strong>for competitive firms</strong>&quot;?</p>
<p>I think each buyer and seller takes the market price <span class="math-container">$P$</span> as given because they are in the competitive market.<br />
If they are not in the competitive market, they may change the price.
Then, they may adjust the price per unit based on the number of units they sell.</p>
<p><a href="https://i.sstatic.net/rUDlLQwk.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/rUDlLQwk.png" alt="enter image description here" /></a></p>

<price><markets><perfect-competition>
Why did Mankiw write "for all types of firms" instead of "for competitive firms"? ("Principles of Economics 9th Edition" by N. Gregory Mankiw.)
佐武五郎
# Why did Mankiw write "for all types of firms" instead of "for competitive firms"? ("Principles of Economics 9th Edition" by N. Gregory Mankiw.)

(Asked by: username_0 on 2024-11-07)

I am reading "Principles of Economics 9th Edition" by N. Gregory Mankiw.

> A competitive market, sometimes called a perfectly competitive market, has two
> characteristics:
>
> * There are many buyers and many sellers in the market.
> * The goods offered by the various sellers are largely the same.
>
> As a result of these conditions, the actions of any single buyer or seller in the
> market have a negligible impact on the market price. Each buyer and seller takes
> the market price as given.

> Column (4) in the table shows average revenue, which is total revenue [from
> column (3)] divided by the amount of output [from column (1)]. Average revenue
> tells us how much revenue a firm receives for the typical unit sold. In Table 1, you
> can see that average revenue equals $\\\$6$, the price of a gallon of milk. This illustrates
> a general lesson that applies not only to competitive firms but to other firms as well.
> Average revenue is total revenue $(P × Q)$ divided by the quantity $(Q)$. ***Therefore,
> for all types of firms, average revenue equals the price of the good.***
>
> Column (5) shows marginal revenue, which is the change in total revenue from
> the sale of each additional unit of output. In Table 1, marginal revenue equals
> $\\\$6$, the price of a gallon of milk. This result illustrates a lesson that applies only to
> firms in competitive markets. Because total revenue is $P × Q$ and $P$ is fixed for a
> competitive firm, when $Q$ rises by $1$ unit, total revenue rises by $P$ dollars. ***Therefore,
> for competitive firms, marginal revenue equals the price of the good.***

Mankiw wrote "Therefore,
**for all types of firms**, average revenue equals the price of the good."  
Why did Mankiw write "**for all types of firms**" instead of "**for competitive firms**"?

I think each buyer and seller takes the market price $P$ as given because they are in the competitive market.  
If they are not in the competitive market, they may change the price.
Then, they may adjust the price per unit based on the number of units they sell.

[![enter image description here](https://i.sstatic.net/rUDlLQwk.png)](https://i.sstatic.net/rUDlLQwk.png)

**Tags:** price, markets, perfect-competition


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## 1 answers

### Answer by username_1 on 2024-11-07. Score: 1 | Accepted answer

The unstated assumption here is that there is no price discrimination by the selling firm. Even if it has pricing power, it simply posts a price $P$ and sells as many goods $Q$ as are demanded at that price. Revenue is then always $P\times Q$. Average revenue is
$$
\frac{Revenue}{Quantity\: sold}=\frac{P\times Q}{Q}=P \: ,
$$
which is the statement by Mankiw.

Of course, it would be different if the firm could price discriminate, i.e., sell to one set of buyers at price $P\_1$ and to others at $P\_2$ (as for example Amazon was rumored to do when it detects you are shopping from an Apple device). In that case, average revenue would be a quantity-weighted average of the two prices.

> **Comments:**
> **username_0**: username_1, thank you very much for your answer.  
> **username_2**: It would also be different under non-linear (also called 'non-uniform') pricing. Even if all consumers had the same price - Two-part tariffs with homogenous consumers are an example. So to state the assumption differently one could say that the assumption is that of linear pricing.  

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