Question

With the help of a diagram, explain the relationship between AR and MR of a firm under imperfect competition.

Answer 1

In Imperfect competition market, the seller decreases the price of the commodity in order to maximise its profit by increasing the sales. As MR decreases with the increase in sales then AR will also decreases but AR decreases with slower rate, therefore AR is more than MR. This condition is possible in this market because firm follows the independent price policy.