Question

What would be the shape of the AR curve if total revenue does not change with increase in sale, i.e., TR curve is a horizontal?

Answer 1

If the Total Revenue (TR) does not change with an increase in sales — meaning the TR curve is horizontal — it implies that the firm is not earning any additional revenue from selling more units of output. In such a case, the Average Revenue (AR), which is calculated as:

`AR = (TR)/Q` will continuously fall as output (Q) increases, because the numerator (TR) remains constant while the denominator (Q) increases.

Therefore, the shape of the AR curve will be a downward-sloping curve approaching the X-axis (but never touching it), indicating that average revenue per unit is falling as more units are sold.