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CA Foundation · Business Economics · Price Determination in Different Markets

For a firm in a perfectly competitive market, which statement about its revenue curves is correct?

Under perfect competition, price is constant for the firm, so AR and MR coincide as one horizontal line at the market price. Total revenue, being price times quantity, rises proportionally with output and is therefore a straight upward-sloping line through the origin.

  1. AMR curve lies below the AR curve and slopes downward
  2. BAR curve slopes downward while MR is constant
  3. CTR curve is a straight line through the origin, while AR and MR coincide as a horizontal lineCorrect
  4. DTR curve is horizontal at the market price

Explanation

A perfectly competitive firm is a price taker, so each extra unit sells at the same price. Hence AR = MR = P, a horizontal line, and TR = P×Q rises at a constant rate, a straight line from the origin. A horizontal TR curve is wrong because TR changes with output.

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