Average and Marginal relationship

Relationship between AR and MR curves:

Whenever the average revenue (i.e., price) remains constant, the marginal revenue will too stay constant and will concur with the average revenue.

Table: Constant AR and MR

2294_ar and mr table1.jpg

1967_ar and mr.jpg

The firm can sell big quantities only at lower prices. In that situation, the average revenue (i.e., price) of the product falls. Whenever AR falls MR will too fall. However fall in MR will be more than the fall in AR. Therefore the marginal revenue curve will lie beneath the average revenue curve (figure is as shown below)

Table: Downward sloping AR and MR

1173_ar and mr table2.jpg

 

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