Why is the total revenue curve of a price-taking firm an upward-sloping straight line? Why does the curve pass through the origin?
The total revenue curve is an upward-sloping straight line because for a price-taking firm, the market price remains constant. The total revenue is calculated as TR = p × q. Since the price (p) is fixed for a price-taking firm, this equation represents a straight line. As the output increases, the total revenue also increases proportionally, making the curve upward-sloping. The slope of this straight line equals the market price.
The curve passes through the origin because when output is zero, the total revenue of the firm is also zero. Since no goods are sold at zero output, no revenue is generated. Therefore, the TR curve starts from point O on the graph where both output and revenue are zero.
Explanation
The textbook explicitly states three key observations about the TR curve: First, at zero output, TR is zero (passing through origin). Second, TR increases with output and since 'TR = p × q' with constant p, it forms a straight line. Third, the slope equals price p. This question tests understanding of the relationship between price, quantity, and revenue for a price-taking firm.