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Demand Curve = AR or MR ?

Discussion in 'CT7' started by Rebecca.Thomas, Apr 10, 2014.

  1. Rebecca.Thomas

    Rebecca.Thomas Very Active Member

    So, I gather that sometimes the demand curve is equal to the average revenue curve and sometime it is equal to the marginal revenue curve, but could someone explain when it is which please? And why it differs?

    Thanks :)
  2. Rebecca.Thomas

    Rebecca.Thomas Very Active Member

    I've found information on the perfectly competitive market, but not have so much luck for monopolies, oligopolies and monopolistic competition

    If anyone could help with these then I'd be very greatly, thank you in advance!
  3. cjno1

    cjno1 Ton up Member

    The demand curve equals the average revenue curve in all cases. This makes sense if you think about what average revenue is, it's just the total revenue divided by quantity sold, and the price and quantity are both taken from the demand curve.

    For example, if the demand curve shows that 100 units will be demanded when the price is 10, then total revenue will be 100x10 = 1000. This means average revenue when the quantity is total revenue divided by quantity sold = 1000/100 = 10, the same as the price on the demand curve.

    The demand curve (and hence the average revenue curve) will also equal the marginal revenue curve only when the market is perfectly competitive. That's because in a perfectly competitive market the price received for selling one more unit of a good is exactly the same as the current unit, so average revenue and marginal revenue are always the same.

    Hope that doesn't confuse you further!
  4. Graham Aylott

    Graham Aylott Ton up Member

    That's an excellent explanation! :)
  5. Rebecca.Thomas

    Rebecca.Thomas Very Active Member

    Thank you very much - that's definitely helped to clear things up!

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