Hous does the shape of revenue curves of a monopolidt differ
from that of a perfectly competitive firm?
Answers
(i) Revenue Curve under Perfect competition:
Perfect competition is the term applied to a situation in which the individual buyer or seller (firm) represent such a small share of the total business transacted in the market that he exerts no perceptible influence on the price of the commodity in which he deals.
Thus, in perfect competition an individual firm is price taker, because the price is determined by the collective forces of market demand and supply which are not influenced by the individual. When price is the same for all units of a commodity, naturally AR (Price) will be equal to MR i.e., AR = MR. The revenue schedule for a competitive firm is shown in the table 5.
Revenue Schedule for a Competitive Firm
In table 5 we find that as output increases, AR remains the same i.e. Rs. 5. Total revenue increases but at a constant rate. Marginal revenue is also constant i.e. Rs. 5 and is equal to AR.
Thus
TR = AR x Q
Also TR = MR x Q [Since AR = MR]
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In figure 8, on the X-axis, we take quantity whereas on Y-axis, we take revenue. At price OP, the seller can sell any amount of the commodity. In this case the average revenue curve is the horizontal line. The Marginal Revenue curve coincides with the Average Revenue.
It is because additional units are sold at the same price as before. In that case AR = MR. A noteworthy point is that OP price is determined by demand and supply of industry.
The firm only follows, (see figure below):
Revenue Curve under Perfect Competition
(ii) Revenue Curves under Monopoly:
Monopoly is opposite to perfect competition. Under monopoly both AR and MR curves slope downward. It indicates that to sell more units of a commodity, the monopolist will have to lower the price. This can be shown with the help of table 6.
Revenue Schedule for a Firm under MonopolyIn case of pure monopoly, AR curve can be rectangular hyperbola as has been shown in Fig. 9. In this situation, a producer is so powerful that by selling his output at different prices, he can make the consumer spend his income on the concerned commodity. In this case AR curve is rectangular hyperbola. It implies that TR of the monopolist will remain same whatever may be the price. Area below each point of AR curve will be equal to each other. When TR is constant MR curve will be represented by OX-axis as has been shown in figure 9.
Revenue Curves under Monopoly
(iii) Revenue Curve under Imperfect Competition:
When a firm is working under conditions of monopoly or imperfect competition, its demand curve or AR curve is less than perfectly elastic, the exact degree of elasticity being different in different market situations depending upon the number of sellers and the nature of product.
In other words, the demand/AR curve has a negative slope and the MR curve lies below it. This is because the monopolist seller ordinarily has to accept a lower price for his product, as he increases his sales.
Under imperfect competition conditions, total revenue increases at a diminishing rate. It becomes maximum and then begins to decline.
The position of various revenue curves is shown in Table 7:
Revenue Schedule for a Firm under Imperfect Competition
In table 7, 2 units can be sold at a unit price of Rs. 5, bringing in total revenue of Rs. 10. When 3 units are sold, the price per unit is lowered to Rs. 4 to make it possible for larger quantity to be sold. The total revenue in this case is Rs. 12.
The marginal unit is not bringing in Rs. 4 which is its price, but only Rs. 2. This is because the additional one unit is sold at Re. one less and the first 2 units which could have been sold for Rs. 5 are also sold at Rs. 4. i.e., Re. one less.
Revenue Curve under Perfect competition:
Perfect competition is the term applied to a situation in which the individual buyer or seller (firm) represent such a small share of the total business transacted in the market that he exerts no perceptible influence on the price of the commodity in which he deals.
Thus, in perfect competition an individual firm is price taker, because the price is determined by the collective forces of market demand and supply which are not influenced by the individual. When price is the same for all units of a commodity, naturally AR (Price) will be equal to MR i.e., AR = MR. The revenue schedule for a competitive firm is shown in the table 5.

In table 5 we find that as output increases, AR remains the same i.e. Rs. 5. Total revenue increases but at a constant rate. Marginal revenue is also constant i.e. Rs. 5 and is equal to AR.
Thus
TR = AR x Q
Also TR = MR x Q [Since AR = MR]
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