Question

Explain the average and marginal revenue curves of a firm under perfect competition.

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)