Question

Compare and contrast revenue curves under different market conditions.

Answer 1

1. Perfect Competition
   1. Features:
      • Many buyers and sellers.
      • Identical (homogeneous) products.
      • Firms are price takers (cannot set their own price).
   2. Revenue Curves:
      • AR = MR = Price (all are constant).
      • AR and MR are horizontal straight lines.
      • TR increases at a constant rate with output.
   3. Example: If the price is ₹10, then:
      • TR = ₹10 × Quantity
      • AR = ₹10
      • MR = ₹10
   4. Diagram:
      
2. Monopoly
   1. Features:

• • • Single seller.
    • No close substitutes.
    • Firm is a price maker.

1. 1. Revenue Curves:

• • • AR is downward sloping.
    • MR also slopes downward but lies below AR.
    • TR rises at first, reaches a maximum, and then falls.

1. 1. Explanation: To sell more, the monopolist must reduce the price, not only for the extra unit but also for all previous units; that’s why MR falls faster.
   2. Diagram:
      
2. Monopolistic Competition
   1. Features:
      • Many sellers.
      • Slightly different products.
      • Firms have some control over price.
   2. Revenue Curves:
      • AR slopes downward (like monopoly).
      • MR lies below AR.
      • Both curves are more elastic than monopoly (flatter), due to the availability of substitutes.
   3. Diagram:
      (Similar to monopoly but flatter AR and MR)
      
3. Oligopoly
   1. Features:

• • • Few large firms.
    • High interdependence among firms.
    • Products may be the same or different.

1. 1. Revenue Curves:

• • • AR slopes downward.
    • MR may have a gap or kink due to price rigidity (explained in the kinked demand model).
    • Firms avoid changing prices because competitors may or may not follow.

Comparison Table:

Market Type	AR Curve	MR Curve	TR Curve
Perfect Competition	Horizontal	Horizontal (same as AR)	Straight, rising line
Monopoly	Downward sloping	Below AR, downward	Rises, then falls
Monopolistic Competition	Downward sloping	Below AR, more elastic	Rises then slows down
Oligopoly	Kinked (possible)	Discontinuous (gap)	Rises, then flattens