Which of the following total revenue schedules, for 1, 2, 3 and 4 units of output, can belong to a firm in a perfectly competitive market?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs 12, Rs 24, Rs 36, Rs 48
A price-taking firm sells every unit at the same price, so TR = p × q. TR is zero at zero output and rises by the price with each unit. So AR = MR = price at every output.
Option (1) Rs 10, Rs 20, Rs 28, Rs 34 — Incorrect. MR falls (10, 8, 6), so the firm must lower its price to sell more.
Option (2) Rs 15, Rs 25, Rs 35, Rs 45 — Incorrect. MR is a steady 10, but AR is 15, 12.50, 11.67, 11.25. AR is not equal to MR; TR would be 5 at zero output.
Option (3) Rs 9, Rs 21, Rs 33, Rs 45 — Incorrect. MR is a steady 12, but AR is 9, 10.50, 11, 11.25. TR would be −3 at zero output, which cannot happen.
Option (4) Rs 12, Rs 24, Rs 36, Rs 48 — Correct. AR and MR are both Rs 12 at every output; the TR line starts from zero.
A constant MR alone is not enough. For a price-taker, AR must also equal MR, which means TR is a straight line through the origin.
NCERT (2026-27): “4.2 Revenue … Three observations are relevant here. First, when the output is zero, the total revenue of the firm is also zero. Therefore, the TR curve passes through point O. 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. …” “In other words, for a price-taking firm, average revenue equals the market price.” |