Q 20
20. What would be the shape of demand curve so that TR curve is
a) A positively sloped straight line passing through the origin
b) a horizontal line
a) When TR is a positively sloped straight line it means that it increases at a constant rate. Therefore MR is constant which means that MR = AR. Hence AR curve is a straight line parallel to x-axis. Since AR curve is same as demand curve, demand curve is also parallel to x-axis representing perfectly elastic demand.
b) When TR is a horizontal line it means AR falls as output increases. So AR will be a rectangular hyperbola. Since AR curve is same as demand curve, demand curve will also be a rectangular hyperbola representing unitary elastic demand.
b) When TR is a horizontal line it means AR falls as output increases. So AR will be a rectangular hyperbola. Since AR curve is same as demand curve, demand curve will also be a rectangular hyperbola representing unitary elastic demand.