Published by: sadikshya
Published date: 02 Jul 2021
Perfect competition market is a market situation in which large numbers of buyers and sellers buy and sell a homogeneous product at a uniform price. In perfect competition, the price of the product is determined by the market through the free interaction between market demand and market supply. The firm has to sell its product to this price. So the price is already given for a perfectly competitive firm.
Derivation of total revenue, average revenue and marginal revenue curves of a perfect competition market.
The total revenue, average revenue and marginal revenue curves for a perfectly competitive firm can be derived with the help of the following table and diagram.
Above the figure shows that the TR curve each an upward sloping line from the origin AR and MR curve indicated. They are represented by a horizontal straight line parallel to the OX axis. The reason behind these shapes of TR, AR and MR curves is the uniform price in the perfect competition market.
A monopoly is a market situation in which there is a single seller or producer. There is no close substitute for a commodity it produces and no entry of other firms in the market. So the monopoly is opposite to perfect competition under monopoly both AR and MR curves slope downward. It indicates that to sell more units of a commodity. The monopoly will have to lower the price.
The following table and diagram show the relation TR, AR and MR curve under imperfect competition market.
The above table and figure show the monopoly firm tries to sell more by offering a lower price TR increases at a decreasing rate. TR curves have a positive slope until it is Maximum. Therefore TR curves have a negative slope, both MR and AR curve is downward sloping from left to right MR decreases faster than AR. When TR is maximum MR is zero.