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Marginal Revenue
Marginal revenue is the addition to total revenue by selling one more
unit of the commodity.
MRn = TRn TRn-1; where MRn = Marginal revenue of the nth unit
TRn = Total revenue of n units
TRn-1 = Total revenue of n-1 units
n = Any given number of units sold.
Suppose 5 units of a product are sold at total revenue of $50 and 6
units are sold at a total revenue of $60. The marginal revenue will be
$60 - $50 = $10. It implies that the 6 th unit earns an additional income
of $10.
The relationship among total, average and marginal revenues under
imperfect competition can be explained with the help of a table given
below:
2. It can be observed from Table 2.5 and Fig. 2.20 that when AR
falls, MR curve lies below it. It means that MR declines at more
rapid rate than AR.
3. Each additional unit sold adds less to the price received for it. It is
evident that at all prices, MR is smaller than AR (price), given that
Qn and (P Pn+1,) are positive. This is clear from the figures given
in the table.
P
10
10
10
10
10
10
10
TR
10
20
30
40
50
60
70
AR = P MR
10
10
10
10
10
10
10
10
10
10
10
10
10
10
Duopoly
PERFECT COMPETITION
The concept of perfect competition was first introduced by Adam
Smith in his book "Wealth of Nations". Later on, it was improved by
Edgeworth. However, it received its complete formation in Frank
Knight's book "Risk, Uncertainty and Profit" (1921).
Examples of markets in perfect competition are extremely rare.
Numerous markets in the retail, service and agricultural sectors
approach perfect competition best. But, in the agricultural sector,
government support price programs distort the market mechanism.