Question

What will be behaviour of AR & MR when
(a) any firm sells more output at the same price?
(b) any firm sells more output by decrease in price?​

Answer 1

Answer:

The relation between average revenue and marginal revenue can be discussed under pure competition, monopoly or monopolistic competition or imperfect competition

The average revenue curve is a horizontal straight line parallel to the X-axis and the marginal revenue curve coincides with it. This is because under pure (or perfect) competition the number of firms selling an iden­tical product is very large.

Thus the demand for the firm’s product becomes infinitely elastic. Since the demand curve is the firm’s average revenue curve, the shape of the AR curve is horizontal to the X-axis at price OP, as shown in Panel (B) and the MR curve coin­cides with it. This is also shown in Table 1 where AR and MR remain constant at Rs.20 at every level of output. Any change in the demand and supply conditions will change the market price of the product, and consequently the horizontal AR curve of the firm

EXPLANATION:

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