Perfect competition is a market structure characterized by the expense of a large number of buyers and sellers dealing with inhomogeneous commodities. Under perfect competition, an individual cannot influence a given market price determined by the industry. So if the firm is a price taker. Hence, the price remains constant as more and more units are sold. The marginal revenue of a firm is always equal to the average revenue.
Deviation of TR, AR, and MR curves under perfect competition
In perfect competition, no individual firm can influence the price, and the firm is only the price taker. The demand and supply in the industry determined the price. So we assume that the price of each unit of the community remains the same. Assuming the Price per unit of a commodity to beach Rs 10.
As shown in the above schedule price of each unit is Rs 10. When a unit of output is sold total revenue is Rs 10. As the sale in Output Rises to 2 units, total revenue Rises to Rs 20. Similarly, Rise in output sold to 7 units, total revenue Rises to Rs 70. Since the price of 8 units of output is the same, the average revenue and marginal revenue are equal to the price. That is P=AR=MR=Rs 10 India schedule.
1. Duration of TR curve
The TR Curve is derived from the above-mentioned schedule by plotting the values in the graph given below.
The amount of revenue against different quantities are populated and join together to derive or linear upward-sloping TR curve. With price remaining unchanged at Rs 10 per unit, the TR increases at a constant rate from Rs 10 to Rs 20, RS 30, Rs 40, and Rs 50 as the quantity sold of a commodity increase from 1 unit to 2 units, 3 units, 4 units, and 5 units respectively.
2. Derivation of AR and MR Curve
The AR the MR is derived from the above-mentioned table. The various amount of revenue against different quantities are plotted and joined together to derive of perfectly elastic AR= MR curve. With the price remaining unchanged at Rs 10 per unit, the AR and MR remain constant at Rs 10.
Under the perfect market conditions, the AR curve will be a horizontal straight line and parallel to the x-axis. This is because a firm has to sell its product at the constant exactly market price. The MR curve also coincides with the AR curve. This is because additional units are sold at the same constant price in the market.
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