Assertion: The Price Line is a horizontal straight line that cuts the x-axis at a height equal to p.
Reasoning: The Price Line is the firm’s AR curve under perfect competition.
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: Assertion (A) is not true but Reasoning (R) is correct.
Assertion: The Price Line is a horizontal straight line that cuts the x-axis at a height equal to p. This is false. The Price Line is a horizontal straight line that cuts the y-axis (and not x-axis) at a height equal to p.
Reasoning: The Price Line is the firm’s AR curve under perfect competition. This is true.
- Average Revenue (AR) = Total Revenue (TR) ÷ Quantity (Q) = P × Q ÷ Q = P.
- Since AR = Price, the AR curve is a horizontal line at p, which coincides with the price line.