Question

Study the schedule given below and explain the relation between Average Revenue and Marginal Revenue by giving a suitable reason.

Units	Price	TR	AR	MR
1	15	15	15	15
2	14	28	14	13
3	13	39	13	11

Answer 1

Explanation:

• Average Revenue (AR) falls as output increases (from 15 to 14 to 13).
• Marginal Revenue (MR) also falls (from 15 to 13 to 11).
• At every level of output (except the first unit), MR is less than AR.

Reason:

To sell more units, the firm reduces the price. The lower price applies to all units sold, not just the additional unit. Therefore, the extra revenue earned from selling one more unit (MR) is less than the price (AR).

When AR is falling, MR is also falling and lies below AR.
This situation generally occurs under imperfect competition.