CUET UG Booster Economics 4 (D2) -

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CUET UG Booster Economics 4 Test (D2)

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Booster Economics 4 Test (D2)

1 / 20

QUESTION 1 OF 20

Conceptually, Total Revenue (TR) for a price-taking firm is visualized as which area on a price-quantity graph?

Answer Review

1 Conceptually, Total Revenue (TR) for a price-taking firm is visualized as which area on a price-quantity graph?

A Area of a triangle under the demand curve.

B Area above the supply curve.

C Area of a rectangle formed by price (vertical height) and quantity (horizontal width).

D The area under the marginal cost curve.

💡 Short Explanation

Total Revenue (TR) is the total amount earned from selling output. TR = Price × Quantity. Graphically, it is represented by the rectangular area under the price line up to the quantity sold.

✅ Correct Answer Explanation

Under perfect competition, a firm is a price taker, meaning it sells every unit at the same market price. Therefore, TR = Price × Quantity (P × Q). On a price-quantity graph: The height of the rectangle is the market price. The width is the quantity sold. Hence, the area of the rectangle equals Total Revenue. Therefore, Option C correctly represents Total Revenue. Why the other options are not correct: Option A refers to a triangle under the demand curve, which is not used to measure Total Revenue under perfect competition. Option B (area above the supply curve) has no relation to Total Revenue. Option D refers to the marginal cost curve, which represents production cost rather than revenue.

❓ Why Other Options Are Incorrect

Option A → Area of a triangle under the demand curve.

Total Revenue is not represented by a triangular area. It is calculated using the rectangular area formed by price and quantity.

Option B → Area above the supply curve.

The supply curve represents production decisions, not revenue earned by the firm.

Option D → The area under the marginal cost curve.

The marginal cost curve shows cost information, not Total Revenue.

🎯 Strategy

Used

Option Grouping

Application:

Only one option directly links the graphical representation with the formula TR = P × Q.

Final Logic:

Since revenue equals price multiplied by quantity, the graphical representation must be a rectangle.

🧠 Memory Trick

TR = Rectangle = Price × Quantity

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Total Revenue (TR)

2 If the firm faces a horizontal price line at p = Rs 40 and produces quantity q, which linear equation correctly defines its Total Revenue (TR) curve?

A TR = 40 + q

B TR = 40q

C TR = 40 / q

D TR = q - 40

💡 Short Explanation

Total Revenue equals Price × Quantity. Market price is constant at Rs 40. Therefore, TR increases by Rs 40 for every additional unit sold.

✅ Correct Answer Explanation

For a perfectly competitive firm, TR = Price × Quantity Given: Price = Rs 40 Quantity = q Therefore, TR = 40 × q = 40q This is a straight-line equation passing through the origin with a slope equal to 40. Hence, Option B is correct. Why the remaining options are incorrect: Option A incorrectly adds price and quantity. Option C represents Average Revenue, not Total Revenue. Option D incorrectly subtracts price from quantity.

❓ Why Other Options Are Incorrect

Option A → TR = 40 + q

Revenue is obtained by multiplication, not addition.

Option C → TR = 40 / q

Dividing price by quantity does not give Total Revenue.

Option D → TR = q - 40

Revenue cannot be obtained by subtracting price from quantity.

🎯 Strategy

Used

Substitution

Application:

Directly substitute the given price into the formula TR = P × Q.

Final Logic:

40 × q immediately gives 40q.

🧠 Memory Trick

TR = P × Q

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Total Revenue Formula

📄 Passage

The average revenue (AR) of a firm is defined as total revenue per unit of output. If a firm's output is q and the market price is p, then TR equals p × q. Hence, AR = TR / q = (p × q) / q = p. We plot the average revenue or market price for different values of a firm's output. Since the market price is fixed at p, we obtain a horizontal straight line.

Based on the passage, if a firm's TR is Rs 500 when it sells 25 units, what is the horizontal height of its AR curve on the y-axis?

A Rs 25

B Rs 500

C Rs 20

D Rs 12500

💡 Short Explanation

AR = TR ÷ Quantity. AR equals the market price. Horizontal AR curve is drawn at Rs 20.

✅ Correct Answer Explanation

Given: Total Revenue = Rs 500 Quantity = 25 units Average Revenue, AR = TR ÷ Q = 500 ÷ 25 = Rs 20 Since the firm operates under perfect competition, AR = Price. Therefore, the horizontal AR curve is drawn at Rs 20 on the y-axis. Hence, Option C is correct. Why the others are incorrect: Option A is not obtained from the formula. Option B is Total Revenue, not Average Revenue. Option D is obtained by multiplication rather than division.

❓ Why Other Options Are Incorrect

Option A → Rs 25

Quantity is not Average Revenue.

Option B → Rs 500

This represents Total Revenue.

Option D → Rs 12500

This value has no economic meaning in this calculation.

🎯 Strategy

Used

Substitution

Application:

Insert the given numerical values into AR = TR/Q.

Final Logic:

500 ÷ 25 = 20.

🧠 Memory Trick

AR = Revenue per Unit

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Average Revenue

📄 Passage

According to the algebraic reduction in the passage, how do changes in output 'q' affect the firm's Average Revenue?

A It increases AR proportionally.

B It has no effect; AR remains constant at p.

C It decreases AR.

D It causes AR to slope upwards.

💡 Short Explanation

AR = TR ÷ Q. Since TR = P × Q, AR simplifies to P. Output changes do not affect AR.

✅ Correct Answer Explanation

The passage shows: AR = (P × Q)/Q = P Since quantity cancels out mathematically, Average Revenue remains equal to the market price regardless of output. Therefore, Option B is correct. The remaining options contradict the algebraic proof given in the passage.

❓ Why Other Options Are Incorrect

Option A → It increases AR proportionally.

AR remains constant because price is fixed.

Option C → It decreases AR.

Quantity does not reduce Average Revenue under perfect competition.

Option D → It causes AR to slope upwards.

The AR curve is horizontal, not upward sloping.

🎯 Strategy

Used

Elimination

Application:

Eliminate all options suggesting AR changes with output because AR = P.

Final Logic:

Quantity cancels out, leaving AR equal to price.

🧠 Memory Trick

Q Cancels → AR = Price

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: AR Equals Price

5 In drawing the TR curve with TR on the y-axis and output on the x-axis, why does the slope of the curve remain perfectly constant?

A Because the market price 'p' does not change regardless of output volume.

B Because marginal cost is perfectly elastic.

C Because the firm can alter the market price at will.

D Because total fixed cost remains the same.

💡 Short Explanation

TR = P × Q. Price remains constant in perfect competition. Therefore, TR increases at a constant rate.

✅ Correct Answer Explanation

The slope of the Total Revenue curve is equal to Marginal Revenue, which is the market price under perfect competition. Since price remains constant, every additional unit sold adds the same amount to Total Revenue. Hence, the TR curve is a straight line with a constant positive slope. Therefore, Option A is correct. The remaining options are incorrect because: Option B confuses marginal cost with revenue. Option C contradicts the price-taking assumption. Option D concerns costs rather than revenue.

❓ Why Other Options Are Incorrect

Option B → Because marginal cost is perfectly elastic.

Marginal cost does not determine the slope of the TR curve.

Option C → Because the firm can alter the market price at will.

A perfectly competitive firm cannot influence market price.

Option D → Because total fixed cost remains the same.

Fixed cost has no effect on Total Revenue.

🎯 Strategy

Used

Conceptual Elimination

Application:

Identify the only option based on the defining feature of perfect competition—constant market price.

Final Logic:

Constant price means each additional unit adds equal revenue, producing a constant TR slope.

🧠 Memory Trick

Constant Price → Constant TR Slope

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Total Revenue Curve

6 Assertion (A): The TR curve is downward sloping for a perfectly competitive firm.
Reason (R): The firm must lower its price to sell more units.

A Both A and R are true.

B A is true, R is false.

C A is false, R is true.

D Both A and R are false.

💡 Short Explanation

The TR curve is an upward-sloping straight line. A perfectly competitive firm sells at a constant market price. It does not reduce its price to increase sales.

✅ Correct Answer Explanation

In perfect competition, the market price remains fixed for an individual firm. Therefore, TR = P × Q Since price is constant, Total Revenue increases proportionately with output, making the TR curve an upward-sloping straight line passing through the origin. Hence, the Assertion is false because the TR curve is not downward sloping. The Reason is also false because a perfectly competitive firm is a price taker and cannot lower the market price to sell more units. It can sell any quantity at the prevailing market price. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Both A and R are true.

Incorrect because both statements are false.

Option B → A is true, R is false.

Incorrect because the Assertion itself is false.

Option C → A is false, R is true.

Incorrect because the Reason is also false.

🎯 Strategy

Used

Elimination

Application:

Recall the basic assumptions of perfect competition. Any statement suggesting that the firm changes price can be eliminated.

Final Logic:

TR rises with output, and price remains constant; therefore, both Assertion and Reason are false.

🧠 Memory Trick

Perfect Competition = Fixed Price = Rising TR

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Total Revenue Curve

7 The characteristic of the TR curve passing through the point O (origin) signifies that producing _____ output yields exactly zero revenue.

A zero

B infinite

C one unit of

D maximum

💡 Short Explanation

TR = Price × Quantity. When output is zero, Total Revenue is zero. Hence, the TR curve starts from the origin.

✅ Correct Answer Explanation

The Total Revenue formula is: TR = P × Q If the firm produces zero units, then: TR = P × 0 = 0 Thus, both output and revenue are zero, which is represented by the origin (0,0). Therefore, Option A is correct. The other options contradict the basic revenue equation.

❓ Why Other Options Are Incorrect

Option B → infinite

Infinite output cannot produce zero revenue.

Option C → one unit of

Selling one unit earns positive revenue.

Option D → maximum

Maximum output results in maximum revenue, not zero revenue.

🎯 Strategy

Used

Substitution

Application:

Substitute Q = 0 into TR = P × Q.

Final Logic:

Zero output always gives zero Total Revenue.

🧠 Memory Trick

No Output → No Revenue

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Properties of Total Revenue Curve

8 Match the variables (List I) with their graphical representation on the TR chart (Figure 4.1) (List II).

List I	List II
1. Output	a. X-axis
2. Total Revenue	b. Y-axis
3. Slope (p)	c. Constant gradient
4. Origin	d. Point O (0,0)

A 1-b, 2-a, 3-d, 4-c

B 1-d, 2-c, 3-b, 4-a

C 1-c, 2-d, 3-a, 4-b

D 1-a, 2-b, 3-c, 4-d

💡 Short Explanation

Output is measured on the X-axis. Total Revenue is measured on the Y-axis. The slope equals the constant market price. The curve begins at the origin.

✅ Correct Answer Explanation

The standard TR graph has: Output on the horizontal (X) axis. Total Revenue on the vertical (Y) axis. A straight line with a constant slope equal to the market price. The graph starts from the origin because zero output gives zero revenue. Hence, 1 → a 2 → b 3 → c 4 → d Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A
Incorrectly exchanges the X-axis and Y-axis.
Option B
Matches variables with unrelated graphical elements.
Option C
Incorrectly assigns the slope and axes.

🎯 Strategy

Used

Option Grouping

Application:

Identify the standard axes first and then match the remaining graphical features.

Final Logic:

Only Option D follows the conventional TR graph.

🧠 Memory Trick

X = Output, Y = Revenue

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Total Revenue Graph

9 Which of the following analytical statements holds true for AR?
1. AR numerically equals the slope of the TR curve.
2. AR measures the additional revenue strictly from the last unit sold.

A Only 2 is true.

B Both 1 and 2 are false.

C Only 1 is true.

D Both 1 and 2 are true.

💡 Short Explanation

AR = TR ÷ Q. Under perfect competition, AR equals price. The slope of the TR curve equals MR, and since MR = AR = Price, Statement 1 is true.

✅ Correct Answer Explanation

Statement 1 is true because: Under perfect competition, AR = Price MR = Price The slope of the Total Revenue curve equals Marginal Revenue. Since MR equals AR in perfect competition, Statement 1 is correct in this context. Statement 2 is false because "additional revenue from the last unit sold" defines Marginal Revenue (MR), not Average Revenue. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Only 2 is true.

Statement 2 defines Marginal Revenue, not Average Revenue.

Option B → Both 1 and 2 are false.

Statement 1 is true under perfect competition.

Option D → Both 1 and 2 are true.

Statement 2 is incorrect.

🎯 Strategy

Used

Conceptual Elimination

Application:

Differentiate Average Revenue from Marginal Revenue before selecting the answer.

Final Logic:

AR is revenue per unit, whereas MR is additional revenue.

🧠 Memory Trick

AR = Average, MR = Marginal

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Average Revenue and Marginal Revenue

10 If Total Revenue is expressed as a function of output f(q) = p × q, the operation to find Average Revenue mathematically represents finding the:

A First derivative of f(q)

B Ratio of f(q) to q

C Integral of f(q)

D Second derivative of f(q)

💡 Short Explanation

Average Revenue is Total Revenue per unit of output. AR = TR ÷ Q. Therefore, AR is obtained by dividing the function by output.

✅ Correct Answer Explanation

Given: TR = f(q) = p × q Average Revenue is defined as: AR = TR ÷ Q = f(q)/q Thus, obtaining Average Revenue requires taking the ratio of Total Revenue to output, not differentiation or integration. Therefore, Option B is correct. The remaining options are incorrect because derivatives relate to Marginal Revenue, while integration is unrelated to calculating Average Revenue.

❓ Why Other Options Are Incorrect

Option A → First derivative of f(q).

The first derivative gives Marginal Revenue, not Average Revenue.

Option C → Integral of f(q).

Integration is not used to calculate Average Revenue.

Option D → Second derivative of f(q).

The second derivative has no role in determining Average Revenue.

🎯 Strategy

Used

Conceptual Elimination

Application:

Recall the formula for Average Revenue and distinguish it from Marginal Revenue.

Final Logic:

Average Revenue is calculated by dividing Total Revenue by output.

🧠 Memory Trick

Average = Divide by Quantity

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Average Revenue Formula

11 If a firm sets its price below the market price p, what happens to its AR?

A The firm will have an AR equal to the new lower price, but there is no reason to do so as it can sell all it wants at market price p.

B Its AR will increase.

C Its AR will become negative.

D Its AR will still equal the market price p regardless of its own set price.

💡 Short Explanation

Average Revenue (AR) equals the price charged per unit. In perfect competition, the firm can sell any quantity at the market price. Charging a lower price reduces AR and revenue unnecessarily.

✅ Correct Answer Explanation

Under perfect competition, the market determines the price, and an individual firm is a price taker. The firm can sell all of its output at the prevailing market price p. If the firm voluntarily charges a lower price than the market price: Its Average Revenue (AR) becomes equal to the lower price it charges. Since buyers are already willing to purchase at the market price, lowering the price is unnecessary and reduces the firm's revenue. Therefore, Option A is correct. Why the other options are incorrect: Option B is incorrect because charging a lower price decreases AR. Option C is incorrect because AR cannot become negative merely by reducing price. Option D is incorrect because AR equals the actual price charged by the firm, not automatically the market price if the firm chooses to charge less.

❓ Why Other Options Are Incorrect

Option B → Its AR will increase.

Lowering price decreases Average Revenue rather than increasing it.

Option C → Its AR will become negative.

AR remains positive as long as the selling price is positive.

Option D → Its AR will still equal the market price p regardless of its own set price.

AR is determined by the firm's selling price. If the firm charges less, AR also becomes lower.

🎯 Strategy

Used

Conceptual Elimination

Application:

Recall that AR = Price. Any option suggesting AR increases or remains unchanged after lowering price can be eliminated.

Final Logic:

Lower selling price directly lowers Average Revenue.

🧠 Memory Trick

AR = Selling Price

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Average Revenue Equals Price

12 The y-axis intercept of the Price Line physically represents the numerical value of the _____.

A total units sold

B maximum profit

C marginal cost

D market price

💡 Short Explanation

The price line is horizontal. It is drawn at the market price. Therefore, its y-axis intercept equals the market price.

✅ Correct Answer Explanation

In perfect competition, the firm's demand (AR) curve is a horizontal line because the market price remains constant. The point where this horizontal line cuts the y-axis represents the numerical value of the market price. Hence, Option D is correct. The remaining options are unrelated to the intercept of the price line.

❓ Why Other Options Are Incorrect

Option A → total units sold

Quantity is measured on the x-axis, not the y-axis.

Option B → maximum profit

Profit is not represented by the y-axis intercept of the price line.

Option C → marginal cost

Marginal cost is represented by a separate cost curve.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Associate the "Price Line" directly with its graphical representation on the demand (AR) curve.

Final Logic:

A horizontal price line always intersects the y-axis at the market price.

🧠 Memory Trick

Price Line → Y-axis = Price

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Average Revenue Curve (Price Line)

13 Match the curve descriptions (List I) with their economic implications (List II).

List I	List II
1. Horizontal AR Curve	a. Value of 'p' on y-axis
2. Upward straight TR curve	b. Firm is a price-taker
3. Perfectly elastic demand	c. Infinite quantity can be sold at p
4. Price line intercept	d. Constant revenue per unit added

A 1-b, 2-a, 3-d, 4-c

B 1-c, 2-b, 3-a, 4-d

C 1-b, 2-d, 3-c, 4-a

D 1-d, 2-c, 3-b, 4-a

💡 Short Explanation

Horizontal AR curve indicates price-taking behaviour. TR rises at a constant rate. Perfectly elastic demand allows unlimited sales at market price. The price line cuts the y-axis at market price.

✅ Correct Answer Explanation

The correct matching is: 1 → b : A horizontal AR curve indicates the firm is a price taker. 2 → d : An upward straight TR curve means every additional unit adds the same revenue. 3 → c : Perfectly elastic demand means any quantity can be sold at the market price. 4 → a : The price line intercept equals the market price on the y-axis. Thus, Option C is correct.

❓ Why Other Options Are Incorrect

Option A
Incorrectly matches the TR curve and price line intercept.
Option B
Incorrectly associates the AR curve with infinite sales.
Option D
Incorrectly matches the TR curve and price-taking behaviour.

🎯 Strategy

Used

Option Grouping

Application:

Match the most obvious graphical relationships first (Price line → y-axis, TR → constant revenue), then eliminate incorrect combinations.

Final Logic:

Only Option C correctly matches all four concepts.

🧠 Memory Trick

AR → Price Taker, TR → Constant Addition

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: AR Curve and TR Curve

14 Arrange the logical deductions showing why the firm's demand curve is perfectly elastic:
1. So, a buyer can choose to buy from any firm and gets the same product.
2. Thus, the firm can sell any amount at price p, forming a horizontal demand curve.
3. Homogenous products mean the product of each firm is identical.
4. If the firm sets a price above p, it loses all buyers.

A 1, 2, 3, 4

B 3, 1, 4, 2

C 4, 3, 2, 1

D 2, 4, 1, 3

💡 Short Explanation

Products are identical. Buyers can purchase from any seller. Charging a higher price drives away all buyers. Therefore, the firm's demand curve is perfectly elastic.

✅ Correct Answer Explanation

The logical sequence is: 3 → Products are homogeneous. 1 → Buyers can freely switch among firms. 4 → Charging above market price causes complete loss of customers. 2 → Therefore, the firm can sell any quantity only at the market price, giving a perfectly elastic demand curve. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A
Begins with buyer behaviour before explaining product homogeneity.
Option C
Starts with the consequence before explaining the underlying reason.
Option D
Places the conclusion before the logical explanation.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the statements from cause to effect.

Final Logic:

Homogeneous products ultimately lead to a perfectly elastic demand curve.

🧠 Memory Trick

Same Product → Same Choice → Same Price → Horizontal Demand

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Perfectly Elastic Demand Curve

15 Assess the truth of the following analytical statements about MR:
I. MR analytically represents the slope of the Total Revenue curve.
II. MR is the y-intercept of the Total Revenue curve.

A Only I is true.

B Only II is true.

C Both I and II are true.

D Neither I nor II is true.

💡 Short Explanation

Marginal Revenue measures the addition to Total Revenue. The slope of the TR curve equals MR. The TR curve passes through the origin, so MR is not its y-intercept.

✅ Correct Answer Explanation

Statement I is correct because Marginal Revenue (MR) measures the additional revenue earned from selling one more unit. Graphically, it equals the slope (gradient) of the Total Revenue curve. Statement II is incorrect because the y-intercept of the TR curve is zero (origin), not Marginal Revenue. The intercept indicates Total Revenue when output is zero, whereas MR measures the change in revenue due to an additional unit sold. Therefore, Option A is the correct answer.

❓ Why Other Options Are Incorrect

Option B → Only II is true.

Statement II is incorrect because MR is not represented by the y-intercept.

Option C → Both I and II are true.

Only Statement I is correct.

Option D → Neither I nor II is true.

Statement I is a fundamental property of the TR curve.

🎯 Strategy

Used

Conceptual Elimination

Application:

Differentiate between the slope of a graph and its intercept.

Final Logic:

MR represents the rate of change of Total Revenue, not where the TR curve cuts the y-axis.

🧠 Memory Trick

MR = Slope, Not Start

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Marginal Revenue

16 Let q1 = 10, q2 = 11, and the market price p = Rs 50. Using the formula MR = [p(q2 - q1)] / (q2 - q1), what is the MR?

A Rs 10

B Rs 11

C Rs 500

D Rs 50

💡 Short Explanation

Marginal Revenue (MR) is the additional revenue earned from selling one more unit. Under perfect competition, MR equals the market price. Since the market price is Rs 50, MR is Rs 50.

✅ Correct Answer Explanation

The given formula is: MR = [p(q₂ − q₁)] / (q₂ − q₁) Substituting the values: q₁ = 10 q₂ = 11 p = Rs 50 MR = [50 × (11 − 10)] / (11 − 10) = 50 × 1 / 1 = Rs 50 Thus, Marginal Revenue equals the market price because each additional unit sold adds the same amount of revenue under perfect competition. Therefore, Option D is correct. Why the other options are incorrect: Option A and Option B confuse MR with the numerical values of quantity. Option C incorrectly multiplies price by quantity instead of calculating additional revenue.

❓ Why Other Options Are Incorrect

Option A → Rs 10

This is one of the quantity values, not Marginal Revenue.

Option B → Rs 11

This is the second quantity level, not the additional revenue.

Option C → Rs 500

Rs 500 represents Total Revenue for 10 units at Rs 50, not Marginal Revenue.

🎯 Strategy

Used

Substitution

Application:

Substitute the given values directly into the MR formula and simplify.

Final Logic:

Since (q₂ − q₁) cancels out, MR equals the market price (Rs 50).

🧠 Memory Trick

Perfect Competition → MR = Price

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Marginal Revenue Formula

17 Because MR equals the market price for a perfectly competitive firm, the MR curve graphically coincides perfectly with the _____.

A Total cost curve

B Total revenue curve

C Average revenue curve (Price Line)

D Y-axis

💡 Short Explanation

Under perfect competition, MR = AR = Price. Therefore, MR and AR are represented by the same horizontal line. The MR curve coincides with the Price Line.

✅ Correct Answer Explanation

In a perfectly competitive market: Average Revenue (AR) = Market Price Marginal Revenue (MR) = Market Price Since both equal the same constant market price, their graphs overlap completely as a horizontal line. Therefore, the MR curve coincides with the Average Revenue (Price Line). Hence, Option C is correct. The remaining options are unrelated to the graphical representation of MR.

❓ Why Other Options Are Incorrect

Option A → Total cost curve

The Total Cost curve represents production costs, not revenue.

Option B → Total revenue curve

MR is the slope of the TR curve, not the TR curve itself.

Option D → Y-axis

The y-axis is only a coordinate axis and is not a revenue curve.

🎯 Strategy

Used

Conceptual Elimination

Application:

Recall the fundamental relationship:
MR = AR = Price

Final Logic:

Equal values imply identical horizontal curves.

🧠 Memory Trick

MR = AR = Price Line

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Relationship among AR, MR and Price

18 Assertion (A): In a perfectly competitive market, MR and AR are mathematically identical.
Reason (R): Both MR and AR are calculated by differentiating Total Cost.

A Both A and R are true, and R explains A.

B A is true, but R is false.

C A is false, but R is true.

D Both A and R are false.

💡 Short Explanation

Under perfect competition, MR = AR = Price. MR is obtained from the change in Total Revenue, not Total Cost. Therefore, the Assertion is true, but the Reason is false.

✅ Correct Answer Explanation

The Assertion is correct because: For a perfectly competitive firm, AR = Price MR = Price Therefore, AR = MR The Reason is incorrect because neither MR nor AR is calculated by differentiating Total Cost. MR is related to the change (or derivative) of Total Revenue. AR is calculated as Total Revenue ÷ Quantity. Thus, the Reason is false. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Both A and R are true, and R explains A.

The Reason is incorrect because it refers to Total Cost instead of Total Revenue.

Option C → A is false, but R is true.

The Assertion is a fundamental property of perfect competition.

Option D → Both A and R are false.

The Assertion is true.

🎯 Strategy

Used

Elimination

Application:

Verify the Assertion and Reason independently before checking whether the Reason explains the Assertion.

Final Logic:

AR equals MR, but neither is derived from Total Cost.

🧠 Memory Trick

MR → TR, Not TC

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Average Revenue and Marginal Revenue

19 Match the algebraic change in variables (List I) to their effect on revenues (List II).

List I	List II
1. Quantity increases by 1 unit	a. Firm loses revenue unnecessarily
2. Output is strictly zero	b. AR and MR remain strictly equal to p
3. Price remains constant 'p'	c. TR = 0
4. Price drops below market 'p'	d. TR increases precisely by p (MR = p)

A 1-d, 2-c, 3-b, 4-a

B 1-b, 2-a, 3-d, 4-c

C 1-c, 2-d, 3-a, 4-b

D 1-a, 2-b, 3-c, 4-d

💡 Short Explanation

Each extra unit increases TR by the market price. Zero output gives zero Total Revenue. Constant price keeps AR and MR equal. Charging below market price reduces revenue unnecessarily.

✅ Correct Answer Explanation

The correct matching is: 1 → d : One extra unit increases TR exactly by the market price (MR = p). 2 → c : Zero output results in zero Total Revenue. 3 → b : Constant price implies AR = MR = p. 4 → a : Selling below the market price unnecessarily reduces revenue. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B
Incorrectly matches quantity increase with AR and MR equality.
Option C
Reverses the effects of zero output and quantity increase.
Option D
Incorrectly pairs all four variables.

🎯 Strategy

Used

Option Grouping

Application:

Match the most straightforward economic relationships first, then eliminate incorrect combinations.

Final Logic:

Only Option A correctly matches all four concepts.

🧠 Memory Trick

+1 Unit → +Price

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Revenue Behaviour

20 Arrange the logical flow of revenue behavior leading to profit analysis:
1. The difference between TR and TC defines the firm's profit.
2. Total Revenue (TR) is calculated as constant market price (p) times quantity (q).
3. Therefore, identifying where MR equals MC helps find maximum profit.
4. Both TR and Total Cost (TC) change as output changes.

A 1, 2, 3, 4

B 4, 3, 2, 1

C 3, 4, 1, 2

D 2, 4, 1, 3

💡 Short Explanation

First calculate Total Revenue. Compare Revenue with Total Cost. Profit equals TR − TC. Maximum profit occurs where MR = MC.

✅ Correct Answer Explanation

The logical sequence is: 2 → Total Revenue is calculated as TR = P × Q. 4 → As output changes, both TR and TC change. 1 → Profit is obtained as TR − TC. 3 → The profit-maximising level of output is where MR = MC. Hence, Option D is correct. The other sequences either begin with the conclusion or place concepts in an illogical order.

❓ Why Other Options Are Incorrect

Option A
Begins with profit before explaining Total Revenue.
Option B
Starts with changing costs before defining Total Revenue.
Option C
Begins with the final profit-maximisation condition instead of the basic revenue concept.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the statements from foundational concept to final conclusion.

Final Logic:

Revenue → Cost → Profit → Profit Maximisation.

🧠 Memory Trick

TR → TC → Profit → MR = MC

📚 Class XI – Introductory Microeconomics – Chapter: The Theory of the Firm under Perfect Competition – Topic: Revenue Behaviour and Profit Maximisation

CUET UG Booster Economics 4 Test (D2)

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