Question

Draw a marginal revenue curve of a perfectly competitive firm and explain why the marginal revenue of a perfectly competitive firm is always equal to its average revenue.

Answer 1

Marginal revenue is the change in total revenue when one more unit of a commodity is sold.

MR= change in TR/change in quantity sold

Average revenue refers to revenue per unit of output.

AR=TR/Q

Relationship between AR and MR:

If AR is constant, MR is equal to AR. Both are indicated by the same horizontal straight line(a situation of perfect competition)