explain the nature of the shape of average revenue curve of a firm under perfect competition?
Under a perfectly competitive market, Average Revenue curve is drawn as the horizontal line parallel to X- axis.
For a firm under perfect competition, Price=AR. The firm is a price taker, while, the price is determined by the ‘invisible hands of market’, i.e. by demand for and supply of the commodities. In other words, firms have no control over the existing market price and cannot influence it. If an individual firm raises its price, then it will lose all its buyers to other firms and vice-versa. Thus, firms have no role to play other than supplying the required output at the existing market price which results in straight line AR curve parallel to X-axis.
For a firm under perfect competition, Price=AR. The firm is a price taker, while, the price is determined by the ‘invisible hands of market’, i.e. by demand for and supply of the commodities. In other words, firms have no control over the existing market price and cannot influence it. If an individual firm raises its price, then it will lose all its buyers to other firms and vice-versa. Thus, firms have no role to play other than supplying the required output at the existing market price which results in straight line AR curve parallel to X-axis.