Short Answer Type Questions
The total revenue is equal to the total quantity of the commodity sold multiplied by the price (or average revenue) TR = Q × P. For example, if a firm sells 1,000 units of a product at a rate of ₹ 5, itstotal revenue will be 1,000 × 5 = ₹
.
For
example, if a firm’s total revenue for one year is ₹ 20 Lac and total quantity
sold is 20,000 units, its average revenue will be 20,000,00 ÷ 20,000 = ₹ 100 .
1. When TR is increasing at constant rate, MR should be
constant.
2. When TR is increasing at diminishing rate, MR should
be diminishing.
3. When TR is maximum, MR is zero.
4. When TR is diminishing, MR is negative.
(b)
An increase in marginal revenue – In case AR is constant (as under perfect
competition), MR is also constant, implying that TR increases at a constant
rate. Accordingly, TR forms a straight line sloping upward and starting from
the origin.
According
to John D. Sumur, “Pure monopoly implies zero elasticity of demand in contrast
to the infinite elasticity of demand which is the characteristic of pure
competition.”
In
the case of monopoly, one firm constitutes the whole industry. Therefore, the
entire demand of the consumers for a product faces the monopolist. Since the
demand curve of the consumers for a product slopes downward, the monopolist
faces a downward sloping demand curve.
According
to Lim Clong Yah, “Imperfect Competition is a market situation where there are
many producers but each offers a slightly differentiated product.”
At
this stage of the market, the firm’s average and marginal revenue is declining,
and thus their curves slope downwards (have a negative slope), but the slopes
are lesser (less sleep) than those in a monopolistic market.
According
to Prof. George J.Stigler, “That situation in which a firm bases its market
policy in part on the expected behaviour of a few close rivals.”
Due
to this uncertainty of the price, the demand curve of the seller is also
uncertain and the market demand curve is also somewhat distorted, which
reflects the price persistence in the market.
The
average and marginal curves in such market are the same, which is a straight
line parallel to the X axis.
1. In a perfect competition market, the average and
marginal curves are not different but the same curve. In imperfect market, both
these curves are different.
2. The revenue curves in a perfect market are perfectly elastic, while in imperfect competition market, the revenue curves are moderately elastic.
1. When TR is increasing at constant rate, MR should be
constant.
2. When TR is increasing at diminishing rate, MR should
be constant.
3. When TR is maximum, MR is zero.
4. When TR is diminishing, MR is negative.
1. Average revenue expresses the per unit price of a
commodity. It can never be negative, while marginal revenue can be negative.
2. When average revenue is constant, both average and
marginal revenue are equal.
3. When average revenue is decreasing, it is greater than
marginal revenue.
It
is clear from the above table, that the increase in total revenue happens at a
diminishing rate, and average revenue is falling continuously. The marginal
revenue is also falling continuously, but the fall in MR is steeper than in AR.
Long Answer Type Questions
1. The average revenue which is the price of the item is
constantly decreasing. This means that the price has to be reduced to sell more
commodities.
2. Marginal Revenue is also continuously decreasing, but
its rate of reduction is higher than the average revenue.
3. There is a steady increase in total revenue but it is increasing
at a decreasing rate.
4. The average revenue is never zero, whereas marginal revenue can be zero also, and can also be negative.
The
revenues of these three can also be displayed by the adjacent figure, and total
revenue, average revenue and marginal revenue curves can be obtained.
From
the picture, it is clear that the AR curve is above the MR curve, because the
rate of decline of AR is less than that of the MR. TR curve is showing the
increasing state of TR.
5000
Figure
shows the Revenue Curves under Perfect Competition
Under
the perfect competition, no firm can take more than the prevailing market
price. Nor can it charge at a lower price than the prevailing market value. To
do this, will not be beneficial. This is because the production of a firm under
perfect competition is a very small fraction of the total production of the
industry.
As
such, a firm could sell its entire production at the current market price, but
if it charges a higher price than the prevailing market price, it won’t be able
to sell a single unit, and if it reduces price below the prevailing market
price, all consumers will flock to it, and he won’t be able to supply such
volumes. Both curves are straight lines parallel to X-axis. In the given
figure, the horizontal line DD represents both marginal as well as average
revenue or price. It signifies that at a price of ₹ 5, a firm under perfect
competition can sell any number of units of output.
The
total revenue is equal to the total quantity of the commodity sold multiplied
by the price or average revenue [TR = AR × Q] or [TR = Q × P]
(C)
Marginal Revenue – Marginal revenue is the addition made to the total revenue
by selling one more unit of a commodity. When the price remains the same, and
an additional unit is sold, the marginal revenue will be equal to the average
revenue, due to the fall in the price, there is no damage to the previous
units. When the average revenue falls, the marginal revenue is less than the
average revenue and when the average revenue remains constant the marginal
revenue is equal to the average revenue.
According
to Leftwich, “Imperfect competition is a market situation in which there are
many sellers of a particular product, but the product of each seller is in some
way differentiated in the minds of consumer from the product of every other
seller.”
According
to Lim Clong Yah, “Imperfect competition is a market situation where there are
many producers but each offers a slightly differentiated product.”
Under
imperfect competition, AR and MR curves are more elastic. It means that when a
firm under imperfect competition raises the price, the proportionate fall in
its demand will be more. It is so because in a imperfect competitive market,
goods have their substitutes and buyers are equally attracted towards them.
Thus, if a firm raises price, demand for its product will fall and if it lowers
the price, demand for its product will rise.
(b)
Monopoly is also an Industry – There being only one firm, the distinction
between firm and industry no longer exists. Monopoly firm is also an industry.
(c)
Substitute of the Commodity – All the units of a commodity are identical and
there are no close substitutes of that commodity.
(d)
No entry of new firms – There is restriction on other firms to enter the
market.
(e)
Price Control – Another distinct feature of monopoly firm is that it enjoys
freedom and independence in fixing the price of the commodity or the ouptput,
it can fix either the price or output, but not both.
(f)
Different Average and Marginal Revenue Curves – Under monopoly, average revenue
or demand curve and marginal revenue curve are separate and downward sloping.
(g)
Selling Costs are very Small or Marginal – This is so because if a buyer has to
buy that product, he has to buy it from the monopoly firm only. Therefore,
there is no competition, and hence, no need of incurring selling costs, i.e.,
costs on advertisement, etc.
(h)
The demand curve – The demand curve in a monopolist market slopes downward.
This means if he sets a lower price of his product, he can sell more. On the
other hand, if he sets a higher price of his product, he will be able to sell
less quantity of his product.
Very Short Answer Type Questions
1.
The firm is acceptor of price and not the determiner.
2.
Products are homogenous in market.
1.
It is the actual position of the market.
2.
Product differentiation can be seen in this market, which can be
done on basis of colour, packing, brand, etc.
1.
There is a single producer or seller of the commodity.
2.
This is an imaginary situation, absolute monopoly is not found
in reality.
1.
Number of sellers is less.
2.
Mutual dependence is clearly seen among sellers.
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