AR and MR curves under Monopoly and Monopolistic
Competition (or Imperfect Competition)
In
both the situations of monopoly and monopolistic competition a firm can have an
independent price policy. In these market situations a firm can sell more goods
at lower prices and would be able to sell less amount of goods at higher
prices. Because of this reason AR and MR curves of the firm would be downward
sloping curve. Furthermore, the MR curve does not coincide with the AR curve
and remains below it; since the sale of an extra unit force down the price at
which extra units can be sold, the sale of an extra unit results in a net
addition to revenue of a amount less than its own selling price. The shapes of
the AR and MR curves in these market situations are illustrated in the
following example and diagram.
Example
|
Units of a
Commodity
|
TR
(Rs.)
|
AR
(Rs.)
|
MR
(Rs.)
|
|
|
1
|
80
|
80
|
-
|
|
|
2
|
140
|
70
|
60
|
|
|
3
|
180
|
60
|
40
|
|
|
4
|
200
|
50
|
20
|
|
|
5
|
210
|
420
|
10
|
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