Which is the other name that is given to the average revenue curve ?

Question

Accepted Answer

The correct option is 2:

In microeconomics, the Average Revenue (AR) curve is conceptually identical to the Demand curve facing a firm. Average Revenue is calculated by dividing Total Revenue (TR) by the quantity (Q) sold: AR = TR / Q. Since Total Revenue is the product of Price (P) and Quantity (Q), we have AR = (P x Q) / Q, which simplifies to AR = P. Therefore, the Average Revenue curve plots the price at which a specific quantity of output can be sold. Because the price that a firm receives for its product is exactly what consumers are willing and able to pay for that quantity, the AR curve graphically represents the relationship between price and quantity demanded—which is the very definition of the firm's Demand curve. This identity holds true in all market structures, whether it is perfect competition (where the AR/Demand curve is perfectly elastic and horizontal) or monopoly/monopolistic competition (where the AR/Demand curve is downward-sloping).

The incorrect option is 1 (Profit curve): A profit curve (or profit function) illustrates the relationship between the level of output and the amount of profit earned (Total Revenue minus Total Cost). It is not a revenue curve.

The incorrect option is 3 (Average cost curve): The Average Cost (AC) curve tracks the per-unit cost of production (Total Cost divided by Quantity). It is related to a firm's expenditure, not its revenue or demand.

The incorrect option is 4 (Indifference curve): An indifference curve is a concept used in consumer theory (utility analysis) to show various combinations of two goods that yield the same level of satisfaction to a consumer. It has no direct relationship with a firm's revenue or demand structure.