Question

Why average revenue curve of a firm is considered as its demand curve?

Answer 1

Average revenue is the income earned per unit of output sold. It is calculated by dividing the total revenue (TR) by the quantity sold (Q).
Thus:

AR = `(TR)/Q`

Since total revenue equals Price × Quantity (P × Q), we get:

`AR = (P × Q) / Q = P`

Therefore, average revenue is equal to price.

We also know that the demand curve shows how much of a product is purchased at various prices. Since average revenue reflects the revenue per unit sold (which equals price), and the demand curve shows quantity at different prices, we can say that if we substitute average revenue with price, then the average revenue curve is the same as the demand curve.