Relationship between tr ar and mr under different market condition

Revenue Curves under Different Markets (With Diagram)

relationship between tr ar and mr under different market condition

Area below each point of AR curve will be equal to each other. When TR is constant MR curve will be represented by OX-axis as has been shown in figure 9. MRn = TRn – TRn-1; where MRn = Marginal revenue of the nth unit The collective forces of demand and supply determine the price in the market so that only one price Consequently AR and MR curves coincide with each other. . level of price, output and profit for a firm under various cost conditions. Focus: Treatment of the implications of different market structures. Example: Firm does not have to lower price to sell more. 8. Qty. Price. TR. MR. AR. 0.

Concepts Of Revenue

Under Oligopoly — The average and marginal revenue cures do not have a smooth downward slope under oligopoly. As the number of sellers under oligopoly is small, the effect a price cut or price hikes on the par of one seller will be followed by some changes in the behaviour of the other firms. If a seller raises the price of his product, the other seller will experience a fall in demand for his product.

His average revenue curve is represented in the diagram 7 becomes elastic after K and its consequent MR curve rises discontinuously from a to b and then persists its course at the new higher level.

relationship between tr ar and mr under different market condition

Alternatively, if the oligopolistic seller reduces the price of his product, his rival also follows him in reducing the prices of their products so that he is not able to enhance his sales. His AR curve becomes less elastic from K onwards and it is represented in the diagram 8. The consequent MR curve falls vertically from a to b and then slopes at a lower level. Profit Determinants — The A curve is the price line for the producer in all market situations.

relationship between tr ar and mr under different market condition

By relating the AR curve to the AC curve of a firm, it can ascertain whether it is earning supernormal or normal profits or incurring losses. If the AR curve is tangent to the AC curve at the point of equilibrium, the firm earns normal profits.

relationship between tr ar and mr under different market condition

If the AR curve is above AC curve, it makes super normal profits. In case, AR curve is below the AC curve at the equilibrium point, the firm incurs losses. Determination of Full capacity — It can also be known from their relationship whether the firm is producing at is full capacity or under capacity. If the AR curve is tangent to the AC curve at its minimum point, under perfect rivalry, the firm produces its full capacity. Where it is not so, under monopolistic competition, the firm posses idle capacity.

Equilibrium Determination — The MR curve when intersected by the MC curve determines the equilibrium position of the firm under all market conditions.

Their point of intersection in fact determines price, output, and profit and loss of a firm. Factor Pricing Determination — The use of the average marginal revenue helps in determining factor prices. In factor pricing they are inverted U shaped and the average and marginal revenue curves become the average revenue productivity and marginal revenue productivity curves ARP and MRP, also they are useful device in describing the equilibrium of the firm under different market conditions.

relationship between tr ar and mr under different market condition

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  • Relation between Average Revenue and Marginal Revenue Curves under Different Market Conditions
  • Revenue Curves under Different Markets (With Diagram)
  • Revenues of the perfectly competitive firm

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The Relationship between Different Revenue Concepts | Economics

A noteworthy point is that OP price is determined by demand and supply of industry. The firm only follows, see figure below: Monopoly is opposite to perfect competition. Under monopoly both AR and MR curves slope downward. It indicates that to sell more units of a commodity, the monopolist will have to lower the price. This can be shown with the help of table 6. In case of pure monopoly, AR curve can be rectangular hyperbola as has been shown in Fig.

The Relationship between Different Revenue Concepts | Economics

In this situation, a producer is so powerful that by selling his output at different prices, he can make the consumer spend his income on the concerned commodity. In this case AR curve is rectangular hyperbola. It implies that TR of the monopolist will remain same whatever may be the price. Area below each point of AR curve will be equal to each other. When a firm is working under conditions of monopoly or imperfect competition, its demand curve or AR curve is less than perfectly elastic, the exact degree of elasticity being different in different market situations depending upon the number of sellers and the nature of product.

This is because the monopolist seller ordinarily has to accept a lower price for his product, as he increases his sales. Under imperfect competition conditions, total revenue increases at a diminishing rate. It becomes maximum and then begins to decline. The position of various revenue curves is shown in Table 7: In table 7, 2 units can be sold at a unit price of Rs. When 3 units are sold, the price per unit is lowered to Rs.

The total revenue in this case is Rs. The marginal unit is not bringing in Rs. This is because the additional one unit is sold at Re. As a result, marginal units do not bring revenue equal to its price. TR increases at a diminishing rate, becomes maximum at point N and then begins to decline. This has been represented by the curve TR. AR at any point on the TR curve is given by the slope of straight line joining the point to the origin.

Under oligopoly market situation the number of sellers is small.