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Question

Why is the total revenue curve of a price-taking firm an upward sloping straight line? Why does the curve pass through the origin?


Solution

For a price-taking firm, AR is constant. In case AR is constant, MR is also constant which implies that TR increases at a constant, positive rate. Hence, TR forms a straight line sloping upward. It passes through the point of origin simply because TR is zero when output is zero.

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