Revenue curves under Different markets

Broadly markets are of three types as follows:

1. Perfectly competitive market

2.Monopoly market

3.Monopolistic competitive market

1.Revenue curve under perfectly competitive market or Perfect competition: Under perfect competition, a firm is a price taker. It cannot influence /change the market price.

AR and MR curve

2. Revenue Curve Under Monopoly:

A monopolist is a price maker. He is the single seller of the product in the market. Under monopoly, however, if a firm desires to sell more , he has to reduce price of the product. Thus, there is  negative relationship  between price of the product na ddemand for the product in a monopoly market. Accordingly, a Firm’s AR curve (or the demand curve or the priice line) slopes downaward. 

3. Revenue Curve Under Monopolistic Competition:

In a Monopolistic Competitive market, producers sell “differentiated product” which means products whose close substitutes are easily available in the market. Under Monopolistic Competitive Market, as under monopoly, producer is a price maker but if a producer wants to sell more, he has to reduce the price.  Hence, as under monopoly, in the monopolistic competitive market also, there is inverse relationship between AR (price) and output. Accordingly, AR curve slopes downward. MR curve also slopes downward and faster than AR curve. Therefore, MR < AR.

However, the difference between monopoly and monopolistic competition is that under monopolistic competition AR curve is more elastic than the AR curve in monopoly. This is because in a monopolistic competitive market, goods have close substitutes whereas in a monopoly market, goods do not have close substitute.     

Firm’s Revenue Curve or Demand Curve in Different Market Situations: Degree of Elasticity of Demand \

Under Perfect Competition Market, the demand Curve is perfectly elastic. This is because the products sold in perfectly competitive market are identical and therefore perfect substitutes.

Under Monopoly, demand curve shows low elasticity as there are no close substitutes of the monopoly product in the market.

Under Monopolistic competition, the demand curve (AR curve) is more elastic than the AR curve in monopoly. This is because in a monopolistic competitive market, goods have large number of close substitutes.