What is the relationship between TR,MR and AR.?

Question

Answer

When price remains constant,AR=MR,TR increase with increasing rate of MR,
when price changes TR increases at decreasing rate of MR ,AR >MRwhen MR is negative,TP decreaseswhen MR is zero, TP is at maximum point.....

Answer

Being a price-maker, a monopolist can select or set the price of his own product. The demand curve faced by a monopoly firm is the industry (or market) demand curve as there is only one firm in the industry. Thus the demand curve (or the AR curve) of a monopoly seller is a downward sloping curve. Its corresponding MR curve is also downward sloping and lies below AR curve (i.e., AR > MR).
As the monopolist desires to increase output, TR may increase, and may decrease after reaching a maximum. Whether TR will increase or decrease depends on whether MR is positive or zero or negative, which, in turn, depends on whether demand is elastic or unitary elastic or inelastic.

Answer

Relationship between TR, MR, and AR

Total Revenue (TR): Total revenue is the total amount of money received from selling a specific quantity of goods or services. It is calculated by multiplying the price per unit by the quantity sold. TR increases with the quantity of goods sold.

Marginal Revenue (MR): Marginal revenue is the additional revenue generated by selling one more unit of a product. It is calculated by the change in total revenue divided by the change in quantity sold. MR can be positive, negative, or zero.

Average Revenue (AR): Average revenue is the revenue generated per unit of a product sold. It is calculated by dividing total revenue by the quantity sold. AR can also be referred to as the price of the product.

Relationship:

TR and MR: Marginal revenue is the slope of the total revenue curve. When total revenue is increasing at a constant rate, marginal revenue is constant. If TR is increasing, MR is positive. When TR reaches its maximum point, MR is zero. If TR starts to decrease, MR becomes negative.

AR and MR: Marginal revenue is equal to average revenue when AR is at its maximum point. When AR is decreasing, MR is less than AR. When AR is increasing, MR is greater than AR.

AR, MR, and Elasticity: If AR is elastic (greater than 1), MR is positive. If AR is inelastic (less than 1), MR is negative. When AR is unitary elastic (equal to 1), MR is zero.

Understanding the relationship between TR, MR, and AR is crucial for businesses to make pricing and production decisions in order to maximize profits and optimize revenue streams.

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