Question

Derive AR, MR from TR with the help of a table. Also explain the relationship between AR and MR.

Answer 1

Here is a clear derivation of Average Revenue (AR) and Marginal Revenue (MR) from Total Revenue (TR) using a table, followed by an explanation of the relationship between AR and MR:

Unit Sold (Q)	Total Revenue (TR)	Average Revenue `(bb(AR = (TR)/Q))`	Marginal Revenue `(bb(MR = (ΔTR)/(ΔQ)))`
1	₹10	₹10.00	₹10
2	₹20	₹10.00	₹10
3	₹30	₹10.00	₹10
4	₹40	₹10.00	₹10
5	₹50	₹10.00	₹10

Explanation of AR and MR Relationship:

1. When Price is Constant (Perfect Competition):
   • AR = MR = Price
   • Both AR and MR remain constant.
   • Graphically, both are horizontal lines.
2. When Price Falls as More Units are Sold (Imperfect Competition):
   • AR = Downward sloping (since price falls)
   • MR falls faster than AR and lies below AR.
   • TR increases at a decreasing rate.

Relationships:

1. AR is derived by dividing TR by the number of units sold.
2. MR is the addition to TR by selling one more unit.
3. When AR is constant, MR = AR.
4. When AR is falling, MR < AR.