Question

If a firm's total revenue curve takes the form of a straight line which passes through the origin, then

• A. Price>Marginal revenue
• B. Price = Marginal revenue
• C. Price<Marginal revenue
• D. None of these

Hint:

When total revenue is represented by a straight line passing through the origin, price is equal to marginal revenue.

Answer 1

The Correct Option is B

Step 1: Understanding Total Revenue and Marginal Revenue:
Total revenue (TR) is the total amount of money a firm receives from selling its goods, which is calculated as the price per unit times the quantity sold: \[ TR = P \times Q \] Marginal revenue (MR) is the change in total revenue resulting from a one-unit change in the quantity sold. In perfect competition, marginal revenue equals price. However, when the total revenue curve is a straight line passing through the origin, it implies a linear relationship between price and quantity, meaning that the firm’s price equals marginal revenue.
Step 2: Analyzing the Options:
- Option (A) Price>Marginal revenue: This is incorrect. In the case of a linear total revenue curve passing through the origin, price is equal to marginal revenue.
- Option (B) Price = Marginal revenue: This is the correct answer. When the total revenue curve is a straight line passing through the origin, price is equal to marginal revenue.
- Option (C) Price<Marginal revenue: This is incorrect. Price cannot be less than marginal revenue in this scenario.
- Option (D) None of these: This is incorrect, as (B) is the correct answer.
Step 3: Conclusion and Answer:
The correct answer is (B) because when the total revenue curve passes through the origin and is linear, price equals marginal revenue.