Question

In what manner does AR of firm under perfect competition, monopoly firm and in monopolistic competition change as output increases?

Answer 1

The demand curve or price line for a firm is the same as AR curve of the firm. Under Perfect competition AR curve is a horizontal straight line. It does not change with the level of output. However, in a monopoly and monopolistic competition, AR curve is downward sloping which means that when output of a commodity increases, its price falls.
Here a point to be noted is, that the AR curve under monopolistic competition is more elastic than under monopoly. This is because under monopolistic market, there are so many close substitutes available whereas, in monopoly market,the monopolist is the single seller and does not have any close substitutes available for its product which makes its demand curve less elastic than the one in monopolistic market.