The AR is the revenue per unit of the output received by the monopolist firm. It is obtained by dividing the Total Revenue from the quantities sold.
So AR=TR/q where AR is the Average Revenue and TR is Total Revenue and ‘q’ is quantity sold.
When the price of a product decreases, the sales get increased and when price increases, the sales decrease. So the demand slopes downwards and the same represent AR.
The AR curve may be represented as follows:
In the above diagram, DD is the monopoly demand curve. The monopolist can influence the price. But the monopolist cannot control both price and quantity supplied at the same time. If the monopolist determines the price, the quantity of demand is determined by the market.
