In perfect Competition when the firm is a price taker, which curve amo...
When price is fixed AR =MR. Hence, AR is straight line as price is constant. Thus, MR is also a straight line
In perfect Competition when the firm is a price taker, which curve amo...
In perfect competition, a firm is considered a price taker, which means it has no control over the price of the product it sells. The price is determined by the market forces of supply and demand. In this scenario, the firm can only adjust its quantity of output to maximize profit.
In perfect competition, there are certain characteristics that define the market structure:
1. There are many buyers and sellers in the market.
2. The products are homogeneous, meaning they are identical and indistinguishable from one another.
3. There is free entry and exit of firms in the market.
4. There is perfect information available to all market participants.
Given these characteristics, let's analyze which curve among the options provided will be a straight line.
Marginal Cost:
- Marginal cost is the additional cost incurred by a firm to produce one more unit of output.
- In perfect competition, firms produce at the point where marginal cost equals marginal revenue to maximize profit.
- However, the marginal cost curve is not a straight line because it usually exhibits diminishing marginal returns, meaning the additional cost of producing each additional unit increases.
- Therefore, the marginal cost curve will not be a straight line in perfect competition.
Average Cost:
- Average cost is the total cost divided by the quantity of output produced.
- The average cost curve is not a straight line because it is influenced by both fixed and variable costs.
- Fixed costs are constant regardless of the level of output, while variable costs change as the quantity of output changes.
- Therefore, the average cost curve will not be a straight line in perfect competition.
Total Cost:
- Total cost is the sum of fixed and variable costs incurred by a firm to produce a given quantity of output.
- The total cost curve is not a straight line because it is influenced by both fixed and variable costs, which do not change at a constant rate.
- Therefore, the total cost curve will not be a straight line in perfect competition.
Marginal Revenue:
- Marginal revenue is the additional revenue generated by a firm from selling one more unit of output.
- In perfect competition, the firm is a price taker, and the price is equal to the marginal revenue.
- Since the price is constant in perfect competition, the marginal revenue curve will be a straight horizontal line.
- This is because the firm can sell any quantity of output at the same price, and selling one more unit will not change the price.
- Therefore, the marginal revenue curve will be a straight line in perfect competition.
In conclusion, among the given options, the marginal revenue curve will be a straight line in perfect competition.
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