Q.How do the average revenue (AR) and marginal revenue (MR) curves of a monopolist differ from those of a firm under perfect competition?

Under perfect competition AR and MR are the same horizontal line, but under monopoly MR lies below the downward-sloping AR curve.

Under perfect competition, a firm is a price taker — it can sell any quantity it wants at the going market price, so its average revenue (price) is the same at every output level, and this also equals its marginal revenue. Both AR and MR are therefore the same horizontal straight line at the level of the market price.

Under monopoly, the firm faces the entire downward-sloping market demand curve, since it is the only seller. Average revenue (price) falls as output rises. To sell one additional unit, the monopolist must lower the price not just on that extra unit but on all units already being sold — so the extra revenue from selling one more unit (marginal revenue) is always less than the price at which that unit is sold. As a result, the MR curve lies below the AR curve at every output beyond the …

Students often draw the monopolist's MR curve parallel to its AR curve; for a linear demand curve MR must …