Q.Under perfect competition, a firm's Average Revenue (AR) curve is:

A perfectly competitive firm is a price taker — it can sell any amount it wants without having to lower the price — so its AR curve simply traces the constant price at every output. …

The correct option is (b) a horizontal straight line.

Under perfect competition, a single firm's output is too small a share of the total market to influence the market price — the firm is a 'price taker'. It can sell as much or as little as it wants at the price set by the whole market, without that price changing. Since $AR = TR/Q = P$, and P stays the same value regardless of the quantity the firm sells, the AR curve is a horizontal straight line drawn at the level of the market price. …

Students sometimes confuse the market demand curve (which is downward sloping even under perfect competition, since the industry as a whole must lower price to sell more) with the individual firm's AR curve (horizontal, since one small firm's output does n …