Question

Explain the average and marginal revenue curves of a firm under monopoly.

Answer 1

1. Characteristics:
   1. One seller controls the entire market.
   2. Product has no close substitutes.
   3. Firm is a price maker (decides price-output combination).
   4. To sell more, it must lower the price.
2. Revenue Behavior:
   1. Average Revenue (AR): Equals Price. Falls as output increases.
   2. Marginal Revenue (MR): Falls faster than AR. Lies below the AR curve.
   3. MR < AR always (after the first unit).
3. Example: If price for
   1. 1 unit = ₹10 → TR = ₹10 → MR = ₹10
   2. 2 units = ₹9 → TR = ₹18 → MR = ₹8
4. Diagram: