Question

Why AR>MR, when price falls with the rise in output?

Answer 1

Dear Student,
AR > MR when price falls with rise in output because when firms try to increase their sales by lowering their prices, the AR curve falls because AR decreases. At this TR is decreasing and due to this additional revenue generated i.e MR is less than AR. That is why both MR and AR curves falls with rise in output and MR becomes less than AR. This is the situation of imperfect competition.

Regards