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Question
Why is the total revenue curve of a price-taking firm an upward-sloping straight line? Why does the curve pass through the origin?
Solution
The total revenue curve for a firm in a perfectly competitive market is an upward sloping curve because the price or AR remains constant and MR is also equal to AR. Thus, TR can only be influenced by altering the output sold, as the price remains constant. The increase in TR is in the same proportion as the increase in the output sold.
The curve passes through the origin, which implies that no matter what the price level is, if the output sold is zero, TR will also be zero.
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Calculate the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs 10.
|
Quantity Sold |
TR |
MR |
AR |
|
0 |
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|
1 |
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|
2 |
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|
3 |
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|
4 |
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|
5 |
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|
6 |
