Statement I: For a price-taking firm, the AR curve and the MR curve are the same horizontal line.
Statement II: The slope of the total revenue curve of a price-taking firm rises as its output rises.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
AR and MR both equal the market price, so they lie on one horizontal line. The TR curve is a straight line, so its slope stays the same at every output.
Statement I: For a price-taking firm, the AR curve and the MR curve are the same horizontal line. — True. AR = TR/q = p and MR = p, at every output. Both are the price line, drawn at the height p.
Statement II: The slope of the total revenue curve of a price-taking firm rises as its output rises. — False. TR = p × q, and p is fixed. So the TR curve is an upward-rising straight line whose slope is always equal to p.
NCERT (2026-27): “4.2 Revenue … 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. Third, consider the slope of this straight line. When the output is one unit (horizontal distance Oq1 in Figure 4.1), the total revenue (vertical height Aq1 in Figure 4.1) is p × 1 = p. Therefore, the slope of the straight line is Aq1/Oq1 = p.” “… Since the market price is fixed at p, we obtain a horizontal straight line that cuts the y-axis at a height equal to p. This horizontal straight line is called the price line. … Consider the situation when the firm’s output changes from q1 to q2. Given the market price p, MR = (pq2 –pq1)/ (q2 –q1) = [p (q2 –q1)]/ (q2 –q1) = p Thus, for the perfectly competitive firm, MR=AR=p” |