Question

Draw the TR and AR curves under perfect competition with the help of a schedule.

Explain, with the help of a diagram, the relation between MR and TR under perfect competition.

Explain the relationship between marginal revenue and total revenue under perfect competition with the help of a diagram.

Answer 1

In perfect competition, the price remains constant, so each unit is sold at the same price. Therefore,

• AR (Average Revenue) = Price
• MR (Marginal Revenue) = AR
• TR (Total Revenue) increases at a constant rate with each unit sold.

Price (₹) P	Units of output Q	TR (₹) P × Q	AR (₹) TR ÷ Q	MR (₹) TRn − TRn−1
(1)	(2)	(3)	(4)	(5)
15	1	15	15	15
15	2	30	15	15
15	3	45	15	15
15	4	60	15	15
15	5	75	15	15

• Price (P) = ₹ 15 remains constant at all levels of output.
• So, AR (Average Revenue) = TR ÷ Q = ₹ 15 and MR (Marginal Revenue) = TR_n − TR_n−1 = ₹ 15 for every unit.
• This is typical of perfect competition, where price = AR = MR.

AR and MR Curve: A horizontal line at ₹ 15, because price stays constant no matter how much output is sold.

TR Curve: A straight line starting from the origin with a constant positive slope, showing total revenue increases proportionally with output.