Question
Under perfect competition, MR = AR, but under monopoly, MR < AR. Explain.
✓
Answer
Under Perfect Competition, AR = MR. Here, industry is the price maker and firm is the price taker. A firm has to accept the price as given by the industry. At this price a firm can sell any amount of the commodity it wants. This means that with sale of every additional unit, additional revenue (i.e., MR) and average revenue (AR) will be equal to the price and thus equal to each other.
But under Monopoly, MR < AR. Here, more of a commodity can be sold only at a lower price and thus MR < AR. AR and MR curves of the firm are downward sloping indicating more units of output can be sold at lower price. MR curve is below AR curve because sale of an extra unit forces down the price at which all units can be sold.
But under Monopoly, MR < AR. Here, more of a commodity can be sold only at a lower price and thus MR < AR. AR and MR curves of the firm are downward sloping indicating more units of output can be sold at lower price. MR curve is below AR curve because sale of an extra unit forces down the price at which all units can be sold.
Need a full question paper?
Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.
Explore more
Similar questions
Find out the total variable cost in:
|
Total Output
(Units)
|
Total Cost (Rs)
|
|
0
|
120
|
|
1
|
180
|
|
2
|
200
|
|
3
|
210
|
|
4
|
230
|
|
5
|
270
|
|
6
|
360
|
Explain the effect of change in income of a consumer on demand of a good.
Explain with the help of a diagram the effect of a decrease in demand for a commodity on its equilibrium price and quantity
OR
Explain the chain of effects on demand, supply and price of a commodity caused by a leftward shift of its demand curve. Use diagram.
OR
Explain the chain of effects on demand, supply and price of a commodity caused by a leftward shift of its demand curve. Use diagram.
Under perfect competition, the seller is a price taker. Under monopoly, he is the price maker. Explain.
OR
Briefly explain why a perfectly competitive firm is a price taker in this market.
OR
Briefly explain why a perfectly competitive firm is a price taker in this market.
Complete the following table:
→|
Price (₹)
|
Output (units)
|
Total Revnue (₹)
|
Marginal Revenue (₹)
|
|
__
|
$1$
|
$6$
|
__
|
|
$4$
|
$2$
|
__
|
$2$
|
|
__
|
$3$
|
$6$
|
__
|
|
$1$
|
$4$
|
__
|
$-2$
|
Can you think of any commodity on which price ceiling is imposed in India? What may be the consequence of price-ceiling?
Define production function. Distinguish between short run and long run production functions.
Define $TR, AR$ and $MR$.
→How is the equilibrium number of firms determined in a market where entry and exit is permitted?
A consumer spends ₹ 100 on a good priced at ₹ 4 per unit. When its price falls by 25 percent, the consumer spends ₹ 75 on the good. Calculate the price elasticity of demand by the Percentage method.