The table shows the total revenue (TR) of two firms at different levels of sales:
| Units sold | TR of firm X (Rs) | TR of firm Y (Rs) |
|---|---|---|
| 1 | 10 | 10 |
| 2 | 20 | 18 |
| 3 | 30 | 24 |
| 4 | 40 | 28 |
Which firm’s figures fit a price-taking firm under perfect competition?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Firm X only, because its TR rises by the same Rs 10 with every extra unit
A price-taking firm sells every unit at the same market price. So TR = p × q rises by the same amount, p, with each extra unit.
Option (1) Firm X only, because its TR rises by the same Rs 10 with every extra unit — Correct. Each unit adds Rs 10, so firm X sells at a fixed price of Rs 10.
Option (2) Neither firm, because the TR of a price-taking firm stays the same at every output — Incorrect. TR of a price-taking firm rises with output; it is the price that stays the same.
Option (3) Both firms, because the TR of each rises as more units are sold — Incorrect. Rising TR is not enough. The rise must be the same for every unit.
Option (4) Firm Y only, because its TR rises more slowly as it sells more — Incorrect. Firm Y’s TR rises by 8, then 6, then 4. Its price falls as it sells more, so it is not a price-taker.
NCERT (2026-27): “4.2 Revenue … Second, the total revenue increases as the output goes up. Moreover, the equation ‘TR = p × q’ is that of a straight line because p is constant. This means that the TR curve is an upward rising straight line. …” “4.2 Revenue … When a firm increases its output by one unit, this extra unit is sold at the market price. Hence, the firm’s increase in total revenue from the one-unit output expansion – that is, MR – is precisely the market price.” |