Question

Explain the average and marginal revenue curves of a firm under perfect competition.

Answer 1

Under Perfect Competition

1. Characteristics:
   1. Many firms and buyers.
   2. Homogeneous product.
   3. Firm is a price taker (cannot influence the price).
   4. Market price is constant.
2. Revenue Behaviour:
   1. Average Revenue (AR): Equals Price. Constant for each unit sold.
   2. Marginal Revenue (MR): Also equals Price. Selling one more unit adds the same revenue.
   3. So, AR = MR = Price.
3. Example: If market price = ₹10
   1. AR = ₹10 for every unit.
   2. MR = ₹10 for every extra unit sold.
4. Diagram: