Question

Explain why a demand curve is also a curve of average revenue. Recalling that when average revenue curve is not falling nor rising, marginal revenue must equal average revenue, explain why it is always true that $ = MR = AR for the perfectly competitive firm.

Answer 1

A demand curve is also a curve of average revenue in a perfectly competitive firm, where $ = MR = AR.

Step-by-step explanation:

A demand curve represents the relationship between price and quantity demanded by consumers. On the other hand, the average revenue curve represents the average revenue generated by the firm per unit of output sold. In a perfectly competitive market, the demand curve is a horizontal line since the firm takes the market price as given. This means that the marginal revenue (MR) for the firm is equal to the market price, which is also equal to the average revenue (AR). Therefore, in a perfectly competitive firm, the demand curve is also the curve of average revenue, and $ = MR = AR.