The relationship between AR and MR can be explained in terms of the perfect market and imperfect market. They are explained below:-
Perfect market- Perfect competition is a concept in microeconomics that describes a market structure controlled entirely by market forces. In this situation, the firm has to accept the same price as determined by the industry. It means any quantity of a commodity can be sold at that particular price. Since firms are price taker, AR and MR curve is a horizontal straight line with the x-axis.
2. Imperfect market – Since firms are price makers, so the price is determined by the firms themselves. Due to which the AR and MR curve may:-
a) The decrease at a constant rate.
Here, the MR curve passes through the mid-point of the line from AR to the y-axis. i.e. ab=bc
b) The decrease in decreasing rate
Here, the MR curve passes through the left of mid-point of the line from AR to the y-axis, i.e. ab
c) The decrease in an increasing rate
Here, the MR curve passes through the right of mid-point of the line from AR to y-axis i.e. ab>bc
