The total revenue of a firm is increasing at a constant rate. Which of the following is true about this firm?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → It is operating in a perfect market and can sell any quantity of the good at given price.
If total revenue (TR) increases at a constant rate, it means:
Marginal Revenue (MR)=ΔTR/ ΔQ = Constant
This happens when the price remains constant regardless of the quantity sold — i.e., the firm faces a perfectly elastic (horizontal) demand curve.
Such a situation occurs only in a perfectly competitive market, where:
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The firm is a price taker.
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It can sell any quantity of the good at the given market price.
Hence, the firm is operating in a perfect market and can sell any quantity at a fixed price.