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By: -
Pawandeep Kaur
Maninder Singh
What is revenue?
By selling a commodity whatever money a firm receives is
called revenue.
and, ∑MR = TR
AR = TR/Q = (P*Q) / Q = P
What happens if AR is constant?
AR is constant (means price is constant), then MR is also
constant. Constant MR implies constant addition to TR when
an additional unit of output is sold. This implies that TR will
increase at a constant rate.
2 10 20 20 – 10 = 10
3 10 30 30 – 20 = 10
TR
REVENUE (Rs)
AR = MR
OUTPUT (units)
REVENUE (Rs)
OUTPUT (Units)
What happens if AR is not constant?
Q AR = P TR = AR * Q MR = TRn – TRn-1
1 10 10 10
2 9.5 19 9
3 9 27 8
MR(-ve)
OUTPUT (Units)
OUTPUT (units)
TR is max
TR
AR
Revenue curve in different markets
Broadly, markets are of three types: -
2) Monopoly market
OUTPUT (Units)
Monopoly market
The AR and MR curves under monopoly slope downwards from
left to right. It means that if a monopolist desires to sell more,
he has to reduce price of the product. A monopolist by
definition is a price maker. Being a single seller of the product
in the market, he can fix whatever price he wishes to. But, he
can sell more only if he lowers the price of the product. Thus,
there is negative relationship between price of the product and
demand for the product in a monopoly market. Accordingly AR
curve slopes downwards means there is inverse relationship
between AR (price) and output.
Revenue curve under monopoly
Q AR = P TR = AR * Q MR = TRn – TRn-1
1 10 10 10
2 9 18 8
3 8 24 6
REVENUE (Rs)
AR
MR
OUTPUT (Units)
Monopolistic competitive market
Revenue curves under monopolistic competition are similar
to monopoly. The difference is that under monopolistic
competition AR and MR are more elastic. It means that in
response to a change in price, the change in demand will be
relatively more as compared to monopoly market. It is
because monopolistic competitive market goods have close
substitutes. On the other hand monopoly market goods do
not have close substitutes.
Revenue curve under monopolistic competitive market
REVENUE (Rs)
AR
MR
OUTPUT (Units)
Comparative look
REVENUE (Rs)
Perfect competition
Monopolistic competition
Monopoly
OUTPUT (Units)
THANK YOU