explain the relationship between marginal revenue and average revenue .When a firm is able to sell more quantity of output at at the same price and only by lowering the price
Answers
Explain the relation between marginal revenue and average revenue when a firm is able to sell more quantity of output : (i) at the same price. (ii) only by lowering the price.
Solution : ... It means, revenue from every additional unit (i.e. MR) will be less than AR.
Explan:- (i) If the market price is unaffected by variations in the firm's output, then the firm's demand curve, its AR curve and MR curve will coincide in the same horizontal line.It means, the revenue from every additional unit (MR) is equal to AR. </br> (ii) MR will be less than AR at all the output levels. When firms can increase their volume of sales only by decreasing the price, then AR falls with increase in sale. It means, revenue from every additional unit (i.e. MR) will be less than AR. As a result, both AR and MR curves slope downwards from left to right.