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What is the relationship between TR, AR and MR under perfect competition? |
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Answer» Solution :(i) In the perfect competition, a firm is a price taker. (ii) It has to sell its product at the same price as given (determined) by the industry. Consequently, price = AR = MR. (iii) Hence, a firm.s AR and MR curve will be a horizontal straight line parallel to X axis. (iv) Since price remains the same, i.e., MR is constant, therefore, TR increases at the Constant rate as increase in the output SOLD. (V) As the result of, TR curve FACING a competitive firm is positively sloped straight line. Again, because at zero output Total REVENUE is zero therefore, TR curve passes through the origin O as shown in the given figure. 
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