Price line
Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
The price line is a horizontal straight line drawn at the market price, with the firm's output on the x-axis. For a perfectly competitive firm, this one line does three jobs at once. It is the firm's average revenue (AR) curve, its marginal revenue (MR) curve and the demand curve facing the firm. This demand curve is perfectly elastic: the firm can sell any quantity at the market price and nothing at a higher price.
Example
If the market price of candles is ₹10 per box, the price line is flat at ₹10. The firm gets ₹10 per box, and ₹10 for each extra box, whether it sells 1 box or 6.
Don't confuse with
- Market (industry) demand curve: this still slopes downward. Only the individual firm's demand curve is flat, because each firm is tiny compared with the market.