Area under the demand curve of a perfectly competitive firm is equal to the:

Question

Accepted Answer

The correct option is 3:

The correct answer is **Total Revenue**. In a perfectly competitive market, the demand curve faced by an individual firm is perfectly elastic (horizontal). This horizontal line represents the market price ($P$), which is constant regardless of the quantity ($Q$) the firm sells. Since Total Revenue (TR) is mathematically calculated as Price times Quantity ($TR = P \times Q$), when this relationship is depicted graphically, the price ($P$) is the height of the area under the demand curve (which is the price line), and the quantity ($Q$) is the width (the amount sold). Therefore, the area of the rectangle formed beneath this demand curve, up to the quantity sold, geometrically represents the firm's Total Revenue.

The incorrect option is 1:

**Marginal Revenue (MR)** is the change in total revenue from selling one additional unit. In perfect competition, Marginal Revenue is equal to the price, but it represents a single value on the vertical axis (Price/Revenue), not the total area under the curve up to a certain quantity.

The incorrect option is 2:

**Average Revenue (AR)** is the revenue per unit sold, calculated as $TR/Q$. In perfect competition, the demand curve is also the Average Revenue curve ($AR = P$). However, Average Revenue is a value on the vertical axis (Price/Revenue) and does not represent the entire area of revenue collected.

The incorrect option is 4:

**Total Profit** is the difference between Total Revenue and Total Cost ($TP = TR - TC$). While Total Revenue is used to calculate Total Profit, they are not the same. Total Profit is often represented by a specific area where the price line exceeds the average total cost curve, not simply the area under the demand curve.