Question

Give the significance of TR, AR and MR in economics.

Answer 1

The main points of significance of revenue curves are as under:

1. Estimation of Profits and Losses: A producer wants to make as much money as possible. Wherever he finds AR > AC, his profits will be at their highest. Maximum earnings will be displayed by the largest difference between AR and AC. A producer determines if he is experiencing losses, normal profits, or supernormal profits.
2. Equilibrium: Knowing how much a producer should create is the second reason AR and MR curves are important. The idea of MR is crucial in this situation. When MR = MC, the company will be in equilibrium. This applies to the company generally in all market conditions. Output, price, profits, or loss are determined by MR = MC. 
3. Capacity Utilisation: If the AR curve is tangent to the AC curve at its minimum point, we can use revenue curves to determine if a company is operating at full capacity. Only when there is perfect competition is it feasible; in the case of monopoly, monopolistic competition, etc., it is not.
4. Price Changes: When determining the price of services, the AR and MR ideas are very helpful. Rent, salaries, interest, and profits all take on an inverted U-shaped form when factor pricing is applied. ARP and MRP (Average Revenue Productivity and Marginal Revenue Productivity) are the results of the AR and MR curves.