State the relationship between marginal revenue and average revenue with curve also
Dear Student,
Marginal revenue is the revenue obtained from every additional unit sold by the producer. It is the change in revenue due to sale of an additional unit.
Average revenue is the total revenue divided by the quantity of output. Generally, it is the price of any good.
Relationship between average revenue and marginal revenue:
(I) When AR is constant, MR = AR.
(II) When AR is diminishing , AR> MR.
(III) When AR is rising , AR< MR.
(IV) MR can be negative , but not AR.
Relation between average revenue and marginal revenue can be studied in pure competition and monopoly.
(i) PURE COMPETITION : Under pure or perfect competition, there are large number of sellers and a seller can sell any quantity of good at a given price. So, its total revenue will increase but at a constant rate so, here AR= MR.
(II) MONOPOLY: Under monopoly, a firm can sell more only by lowering its price. so, average revenue curve is downward sloping and marginal revenue curve lies under it.
Hope this information will clear your doubts on this topic.
If you have any more doubts just ask on the forum and our experts will try to help you out as soon as possible.
Regards
Marginal revenue is the revenue obtained from every additional unit sold by the producer. It is the change in revenue due to sale of an additional unit.
Average revenue is the total revenue divided by the quantity of output. Generally, it is the price of any good.
Relationship between average revenue and marginal revenue:
(I) When AR is constant, MR = AR.
(II) When AR is diminishing , AR> MR.
(III) When AR is rising , AR< MR.
(IV) MR can be negative , but not AR.
Relation between average revenue and marginal revenue can be studied in pure competition and monopoly.
(i) PURE COMPETITION : Under pure or perfect competition, there are large number of sellers and a seller can sell any quantity of good at a given price. So, its total revenue will increase but at a constant rate so, here AR= MR.
(II) MONOPOLY: Under monopoly, a firm can sell more only by lowering its price. so, average revenue curve is downward sloping and marginal revenue curve lies under it.
Hope this information will clear your doubts on this topic.
If you have any more doubts just ask on the forum and our experts will try to help you out as soon as possible.
Regards