Answer the given question in the context of a perfectly competitive market.
Assertion: TR curve is an upward rising straight line.
Reasoning: When the output is zero, the total revenue of the firm is also zero.
Answer & explanation
Correct answer: option 2
The correct answer is Option 1: Both Assertion (A) and reasoning (R) are correct and but R is not the correct explanation of A.
- Assertion (A): The Total Revenue (TR) curve is an upward-rising straight line in a perfectly competitive market. This is because TR is calculated as Price × Quantity (TR = P × Q), and since price remains constant in perfect competition, the TR curve increases proportionally with output, forming a straight line.
- Reason (R): When output is zero, total revenue is also zero, which is correct because revenue depends on sales. If nothing is sold, no revenue is generated.
- The reasoning explains why TR starts from zero, but it does not explain why the TR curve is an upward-rising straight line.
- The linear nature of the TR curve is due to the fact that price remains constant in a perfectly competitive market, leading to a constant slope of TR.