Different revenue curves under perfect competition and monopoly market
Perfect competition is the market structure where there is a large number of buyers and sellers producing homogeneous products selling at the price fixed by the interaction of demand and supply or market mechanisms. There is no government intervention under this market as goods and services can be freely transferred from one country to another. The firms are considered price takers because they do not have control over the prices as the price is fixed by the market equilibrium that is the interaction between demand and supply.
The relationships between TR, AR, and MR can be shown by the following table and graph;
| Number of units sold (Q) | Price
(P) |
Total Revenue (TR) | Average Revenue (AR) | Marginal Revenue (MR) |
| 0 | 10 | 0 | 0 | 0 |
| 1 | 10 | 10 | 10 | 10 |
| 2 | 10 | 20 | 10 | 10 |
| 3 | 10 | 30 | 10 | 10 |
| 4 | 10 | 40 | 10 | 10 |
| 5 | 10 | 50 | 10 | 10 |
In the above figure, price, AR, MR, TR is measured along y-axis and units sold are measured along x-axis respectively. When the units of output sold are increasing remaining the price constant, the total revenue also continuously from 0 units to 50 units up to 5th units sold. Likewise, average revenue and marginal revenue remain constant at 10 units. Here, AR=MR=P that is Average Revenue=Marginal Revenue=Price.
Define monopoly market structure and how revenue curves are determined under this market? Also, mention some disadvantages of this market?
Monopoly is a market structure in which there is a single producer or seller of a product and there is no close substitute for its product in the market. In this market, there can be rivalry among the firms.
| Number of units sold (Q) | Price
(P) |
Total Revenue (TR) | Average Revenue (AR) | Marginal Revenue (MR) |
| 0 | 10 | 0 | 0 | 0 |
| 1 | 10 | 10 | 10 | 10 |
| 2 | 9 | 18 | 9 | 8 |
| 3 | 8 | 24 | 8 | 6 |
| 4 | 7 | 28 | 7 | 4 |
| 5 | 6 | 30 | 6 | 2 |
| 6 | 5 | 30 | 5 | 0 |
| 7 | 4 | 28 | 4 | -2 |
In the above figure, price, AR, MR, TR is measured along y-axis and units sold are measured along x-axis respectively. When no output is sold, TR is zero. TR is increasing at decreasing rate up to 5th units of output sold then remains constant at 6th units of output sold that is 30 units and decrease continuously beyond it. AR continuously decreases with the decrease in price but it becomes positive or never becomes zero. MR also continuously decreases up to 5th units of output sold, becomes zero at 6th units and becomes negative at 7th units of output sold. Likewise, price has also decreased continuously that is 10 to 10 to 9 to 8 to 7 to 6 to 5 to 4.
Some of the disadvantages of monopoly are given below:iff
- Higher Price:
Monopolies have higher prices than competitive market. Firms themselves set their prices and consumers have no other alternatives as there is no close substitutes of the product.
- Decline in consumer surplus:
Consumers pay higher prices and only high income generated consumers can afford it. It leads to allocative inefficiency of the consumer income and declines in the consumer surplus.
- Unfair trade practices:
Under this market, monopolist firms only focus in their self-interest and profit maximization producing and distributing inferior products. There exist unfair trade practices.
- Low quality of goods:
Since there is no competition in such a market, a monopoly might provide low or inferior quality of goods to save their cost of production in order to gain more profits.
