MR curve=AR=Demand curve is a feature of which kind of market?
The feature of MR curve=AR=Demand curve is characteristic of a perfect competition market. In a perfect competition market, there are numerous buyers and sellers of homogeneous products. Here is a detailed explanation:
1. Perfect competition:
- Perfect competition is a market structure where there are many buyers and sellers.
- The products sold in this market are identical or homogeneous, meaning they are indistinguishable from each other.
- There is free entry and exit of firms in the market, allowing for easy competition.
- The information is perfect, and all participants have full knowledge of prices and market conditions.
- In perfect competition, firms are price takers, meaning they cannot influence the market price.
- The demand curve faced by a firm in perfect competition is perfectly elastic, i.e., horizontal.
- Marginal revenue (MR) is equal to average revenue (AR), which is equal to the demand curve.
2. MR curve=AR=Demand curve:
- In perfect competition, since the firm is a price taker, it can only sell its output at the prevailing market price.
- The demand curve faced by the firm is perfectly elastic, meaning any change in quantity will not affect the price.
- Consequently, the average revenue (AR) curve, which represents the price at which the firm sells its output, is a horizontal line.
- Since the firm can sell additional units only at the prevailing market price, the marginal revenue (MR) curve is also horizontal and coincides with the AR curve.
- Therefore, in perfect competition, the MR curve, AR curve, and demand curve are all the same.
Conclusion:
- The feature of MR curve=AR=Demand curve is unique to perfect competition.
- In other market structures like oligopoly, monopolistic competition, and monopoly, the MR curve, AR curve, and demand curve are not equal.
- Thus, the correct answer to the question is A: Perfect competition.