Illustrate the relationship between average revenue and marginal revenue in relation to the marketing structure

Expert Solution

Answer : The relationship between marginal revenue and average revenue in different market structure are :

For perfect competition : In perfectly competitive market large number of firms exists. All firms are price taker. At given market price level increasing selling quantity increase the firms' total revenue. But this increase in total revenue is constant. Hence marginal revenue and average revenue are also constant. For this reason under perfect competition the marginal revenue curve and average revenue curve are same and horizontal at given market price level.

For imperfect market structure : Firms under imperfect market structure has market power and face downward sloping demand curve. Hence in this market structure firm can increase the total revenue by decreasing price level. In this market structure average revenue curve and marginal revenue curve are downward sloping. And the marginal revenue is half of average revenue. For this reason in this market structure the marginal revenue curve lies below the average revenue curve.

Rahul Sunny answered 2 years ago

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