In a perfectly competitive market, the price of a good rises from Rs…

In a perfectly competitive market, the price of a good rises from Rs 10 to Rs 12. What happens to a firm’s price line and its total revenue (TR) curve?

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → The price line shifts up to Rs 12; the TR curve becomes steeper and still passes through the origin.

The price line is drawn at the height of the price, and the slope of the TR curve equals the price. A price rise lifts the first and makes the second steeper.

Option (1) The price line shifts up to Rs 12; the TR curve becomes steeper and still passes through the origin. — Correct. The price line moves up to Rs 12. TR = 12q is still zero at zero output, so the line starts from the origin with a larger slope.

Option (2) The price line stays at Rs 10; the TR curve becomes steeper and still passes through the origin. — Incorrect. The price line is always at the market price, so it moves up to Rs 12.

Option (3) The price line shifts up to Rs 12; the TR curve shifts up parallel and no longer passes through the origin. — Incorrect. At zero output TR is zero at any price, so the TR curve still passes through the origin; it turns steeper.

Option (4) The price line shifts up to Rs 12; the TR curve becomes flatter and still passes through the origin. — Incorrect. The slope of the TR curve equals the price. A higher price makes it steeper.

NCERT (2026-27): “4.2 Revenue 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. 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.”