Advertisements
Advertisements
Questions
Draw the TR and AR curves under perfect competition with the help of a schedule.
Explain, with the help of a diagram, the relation between MR and TR under perfect competition.
Explain the relationship between marginal revenue and total revenue under perfect competition with the help of a diagram.
Diagram
Explain
Very Long Answer
Advertisements
Solution
In perfect competition, the price remains constant, so each unit is sold at the same price. Therefore,
- AR (Average Revenue) = Price
- MR (Marginal Revenue) = AR
- TR (Total Revenue) increases at a constant rate with each unit sold.
| Price (₹) P |
Units of output Q |
TR (₹) P × Q |
AR (₹) TR ÷ Q |
MR (₹) TRn − TRn−1 |
| (1) | (2) | (3) | (4) | (5) |
| 15 | 1 | 15 | 15 | 15 |
| 15 | 2 | 30 | 15 | 15 |
| 15 | 3 | 45 | 15 | 15 |
| 15 | 4 | 60 | 15 | 15 |
| 15 | 5 | 75 | 15 | 15 |
- Price (P) = ₹ 15 remains constant at all levels of output.
- So, AR (Average Revenue) = TR ÷ Q = ₹ 15 and MR (Marginal Revenue) = TRn − TRn−1 = ₹ 15 for every unit.
- This is typical of perfect competition, where price = AR = MR.
AR and MR Curve: A horizontal line at ₹ 15, because price stays constant no matter how much output is sold.
TR Curve: A straight line starting from the origin with a constant positive slope, showing total revenue increases proportionally with output.
shaalaa.com
Notes
Students should refer to the answer according to the question.
Is there an error in this question or solution?
