Question

How are the marginal revenue and average revenue curves under monopoly and imperfect competition?

Answer 1

• Under monopoly and imperfect competition, both marginal revenue (MR) and average revenue (AR) curves are downward sloping.
• The AR curve represents the demand curve, and as the firm lowers the price to sell more units, the MR becomes less than AR.
• Therefore, the MR curve lies below the AR curve throughout.
• This is because the firm must reduce the price on all units sold to sell an additional unit, causing MR to fall faster than AR.