Question

What are the shapes of the AR and MR curves when the firm sells its output at a constant price?

Answer 1

When the firm sells its output at a constant price (perfect competition), AR = Price = MR at every level of output. Therefore, both the AR curve and the MR curve are horizontal straight lines parallel to the X-axis, and they coincide with each other at the level of the market price. This horizontal line is also called the price line or the demand curve facing a competitive firm.