Explain the relationship between AR and MR under monopoly with the help of a schedule and a diagram.

Under monopoly or imperfect competition, price tends to alter within that market. Average revenue as well as marginal revenue curve tend to be downward sloping, whereby the former is situated above the marginal revenue and is less elastic in such a market form due to absence of substitutes.

Given the demand of the product, under monopoly, sales are capable of being incremented by lowering price. As a result, marginal revenue falls, with the rate of fall in marginal revenue remains greater in comparison to the average revenue. The relationship occurring between the two parameters can be exhibited in the following schedule, whereby the marginal revenue remains lower in comparison to the average revenue, like in an instance when the average revenue drops by INR 2 at a time while the marginal revenue drops by INR 4.

Here, TR = Total Revenue

AR = Average Revenue

MR = Marginal Revenue