Questions: Multiple Choice Question Suppose the market for marshmallows is perfectly competitive, and marshmallows sell for 3 per bag. For a firm that produces marshmallows, what's the marginal revenue from selling a bag of marshmallows? Greater than 3 3 Less than 3

The answer is the second one: \$3.

Explanation:

1. Greater than \$3: This option is incorrect because, in a perfectly competitive market, firms are price takers. This means they cannot influence the market price and must accept the prevailing market price for their product. Therefore, the marginal revenue (the additional revenue from selling one more unit) cannot be greater than the market price.

2. \$3: This option is correct. In a perfectly competitive market, the price of the product is constant and equal to the market price. The marginal revenue for a firm in such a market is equal to the price of the product. Since marshmallows sell for \$3 per bag, the marginal revenue from selling one more bag of marshmallows is also \$3.

3. Less than \$3: This option is incorrect because, in a perfectly competitive market, the marginal revenue is always equal to the market price. It cannot be less than the market price as firms can sell any quantity at the market price without affecting the price.

Summary: In a perfectly competitive market, the marginal revenue from selling an additional unit of a product is equal to the market price of the product. Therefore, the marginal revenue from selling a bag of marshmallows, which sell for \$3 per bag, is \$3.