Assertion: TR curve is an upward rising straight line in a perfectly competitive market.
Reasoning: Price remains constant in a perfectly competitive market.
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Both Assertion (A) and reasoning (R) are correct and R is 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 Total Revenue (TR) = Price × Quantity (P × Q).
- Reason (R): In perfect competition, price remains constant because firms are price takers. Since each additional unit of output is sold at the same market price, TR increases at a constant rate, resulting in a straight-line TR curve.
- Since price is constant, every additional unit sold adds the same amount to total revenue. This linear relationship makes the TR curve an upward-rising straight line.
- If price varied with output, the TR curve would be non-linear, but in perfect competition, constant price ensures a straight-line TR curve.
- Thus R explains A fully.