The shape of the average revenue curve under perfect competition would be _____. (Fill up the blank)

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Q. The shape of the average revenue curve under perfect competition would be _________. (Fill up the blank)

Arunachal CbseCBSE Class XII Board 2019Subjective· 1mImportance★★★★★

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Concept understanding — Marginal Revenue Constant

Marginal Revenue Constant: When Every Extra Unit Earns the Same

Think about a lemonade stand. On a hot day, you sell the first glass for ₹20. The second glass? Still ₹20. The third? ₹20 again. Every time you sell one more glass, your total revenue goes up by exactly ₹20. That ₹20 is your marginal revenue — and it stays the same no matter how many glasses you sell.

That is the simplest case of constant marginal revenue. But in economics, this situation is special, not automatic. Let's see why.

The Precise Meaning

Marginal Revenue (MR) is the change in total revenue when you sell one additional unit of output.

MR = \frac{\Delta TR}{\Delta Q}

Where:

$\Delta TR$ = change in total revenue
$\Delta Q$ = change in quantity sold (usually 1 unit)

When MR is constant, it means every extra unit you sell adds exactly the same amount to your total revenue. The number does not change as you sell more.

When Does MR Stay Constant?

This happens only when the firm can sell any quantity at the same price — that is, when the firm is a price taker. In perfect competition, the market sets the price, and the individual firm cannot influence it. So:

MR = P

The marginal revenue from selling one more unit is simply the market price. And since the price does not change with the firm's output, MR is constant.

Important

In perfect competition, $MR = AR = P$ at every level of output. The MR curve is a horizontal straight line at the market price.

Why It Matters

Constant MR changes how a firm thinks about profit. If MR is constant, the firm's total revenue is a straight line:

TR = P \times Q

Every extra unit adds exactly $P$ to revenue. So the firm's decision to produce more depends entirely on whether the marginal cost of that unit is less than or greater than this constant MR.

Note

If MR is constant but MC is rising (as it usually does), the firm will keep producing until $MR = MC$ . That is the profit-maximising output.

The Contrast: When MR Is Not Constant

Most real-world firms face downward-sloping demand. To sell more, they must lower the price on all units. So the extra revenue from selling one more unit is less than the price — MR falls as output rises. That is the world of monopoly, monopolistic competition, and oligopoly. …

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Under perfect competition, the average revenue curve is a horizontal straight line at the market price because each firm is a price taker and can sell any quantity at that price.

The key to understanding this lies in the nature of perfect competition itself. In this market structure, there are so many buyers and sellers that no single firm can influence the market price. Each firm is a price taker — it must accept the price determined by the overall market demand and supply. This means the firm can sell any amount of its output at that prevailing price, but cannot charge even a rupee more without losing all its customers.

Now, average revenue (AR) is simply total revenue divided by quantity sold. Since every unit sells for the same market price, AR is constant and equal to that price. For example, if the market price is ₹10 per unit, selling 1 unit gives ₹10, selling 100 units gives ₹1000, and in every case AR = ₹10. So the AR curve is a horizontal straight line parallel to the quantity axis at the height of the market price.

AR = \frac{TR}{Q} = \frac{P \times Q}{Q} = P

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Q.The shape of the average revenue curve under perfect competition would be _________. (Fill up the blank)

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