What is the shape of Average Revenue (AR) curve under perfect competition?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Horizontal straight line.
Under perfect competition, a firm is a price taker — it cannot influence the market price and must sell its product at the prevailing market price.
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As a result, Average Revenue (AR), which is total revenue divided by quantity sold, remains constant at all levels of output.
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Therefore, the AR curve is a horizontal straight line parallel to the X-axis, indicating that price = AR = MR at all output levels.