Question

Explain the relationship between marginal revenue and average revenue.

Answer 1

The following observations highlight the relationship between marginal revenue (MR) and average revenue (AR):
(i) When the average revenue is constant, it is equal to the marginal revenue, as under perfect competition.
(ii) When the average revenue is diminishing, it is greater than the marginal revenue. This holds true in situations of both monoply and monopolistic competition.
(iii) Marginal revenue can be zero or negative but average revenue can never be negative.