Question

What are the shapes of the AR and MR curves when the firm has to reduce its price to sell more?

Answer 1

When the firm has to reduce its price to sell more (imperfect competition), both the AR curve and the MR curve are negatively sloped (downward sloping from left to right). MR lies below AR at every level of output, i.e., MR < AR. If the AR curve is a straight line, the MR curve falls at twice the rate of the AR curve, so MR cuts the X-axis at the midpoint of the perpendicular drawn from any point on AR to the Y-axis.