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What is the behaviour of average revenue in a market in which a firm can sell more only by lowering the price?
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Solution
Average revenue (AR) of a firm is the total revenue per unit of output sold. AR = p * q/q = p. When AR equals the market price, the firm can sell any amount of good at a given price. If the firm sells more quantity of output by lowering the price, then the AR curve slopes downwards.
Concept: Total, Average and Marginal Revenue
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