For a firm in a perfectly competitive market, which of the following is NOT equal to the market price?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → The height of the total revenue curve
The height of the TR curve at any output is the total revenue, p × q. It equals the price only at one unit of output.
Option (1) Average revenue at any level of output — True. It is equal to the price: AR = TR/q = (p × q)/q = p.
Option (2) Marginal revenue at any level of output — True. It is equal to the price. Each extra unit is sold at the market price, so MR = p.
Option (3) The slope of the total revenue curve — True. It is equal to the price. The TR curve is a straight line through the origin, and its slope is Aq1/Oq1 = p.
Option (4) The height of the total revenue curve — False. It is not equal to the price. At 5 units sold at Rs 10, the height is Rs 50. The height grows with output, while the price stays the same.
NCERT (2026-27): “4.2 Revenue 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. … In other words, for a price-taking firm, average revenue equals the market price. … Thus, for the perfectly competitive firm, MR=AR=p In other words, for a price-taking firm, marginal revenue equals the market price.” |