Please explain the relation between TR and MR
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Relationship between TR and MR (When Price remains Constant):
When price remains constant, firms can sell any quantity of output at the price fixed by the market. As a result, MR curve (and AR curve) is a horizontal straight line parallel to the X-axis. Since MR remains constant, TR also increases at a constant rate (see Table 7.3). Due to this reason, the TR curve is a positively sloped straight line (see Fig. 7.2). As TR is zero at zero level of output, the TR curve starts from the origin.
Table 7.3: TR and MR (When Price remains Constant):
Units sold Price/AR (Rs.) TR (Rs.) MR (Rs.)
1 5 5 5
2 5 10 5
3 5 15 5
4 5 20 5
5 5 25 5
Relationship between TR and Price line:
When price remains constant at all the levels of output, then Price = AR = MR. Therefore, price line is the same as MR curve. Also, TR = I MR. So, the area under MR curve or price line will be equal to TR. In Fig. 7.3, TR at MR level of output = OP x OQ = Area under price line.
When price remains constant, firms can sell any quantity of output at the price fixed by the market. As a result, MR curve (and AR curve) is a horizontal straight line parallel to the X-axis. Since MR remains constant, TR also increases at a constant rate (see Table 7.3). Due to this reason, the TR curve is a positively sloped straight line (see Fig. 7.2). As TR is zero at zero level of output, the TR curve starts from the origin.
Table 7.3: TR and MR (When Price remains Constant):
Units sold Price/AR (Rs.) TR (Rs.) MR (Rs.)
1 5 5 5
2 5 10 5
3 5 15 5
4 5 20 5
5 5 25 5
Relationship between TR and Price line:
When price remains constant at all the levels of output, then Price = AR = MR. Therefore, price line is the same as MR curve. Also, TR = I MR. So, the area under MR curve or price line will be equal to TR. In Fig. 7.3, TR at MR level of output = OP x OQ = Area under price line.
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