question_answer

State the relation between marginal revenue and average revenue.

Or

State the relation between total cost and marginal cost.

Answer:

The relationship between marginal revenue and average revenue can be divided under two forms of market - under Perfect Competition market and under Imperfect Competition market.

Under Perfect Competition market, average revenue equals marginal revenue throughout all output levels. Graphically, marginal revenue curve is a straight horizontal line parallel to the x-axis and coincides with the average revenue curve.

Under Imperfect Competition market, as output increases both average revenue and marginal revenue fall. However, average revenue remains greater than marginal revenue at all levels of output. Graphically, both average revenue curve and marginal revenue curve are downward sloping but the AR curve remains above the marginal revenue curve.

MR may even go to zero or negative but AR curve continues to be positive.

Or

In economics and finance marginal cost is the change in the total cost that arises when the quantity produced has an increment by unit. Marginal Cost is derived from Total Cost by using the following formula:

\[M{{C}_{n}}=T{{C}_{n}}-T{{C}_{n-1}}\]

where,

\[M{{C}_{n}}\] represents Marginal Cost of producing ?n? units of output

\[T{{C}_{n}}\] represents Total Cost of producing ?n? units of output

\[T{{C}_{n-1}}\] represents Total Cost of producing \['n-1'\] units

While, Total Cost refers to the total cost of production that is incurred by a firm in the short run to carry out the production of goods and services. It is the aggregate of expenditure incurred on fixed factors as well as variable factors. Total cost can be derived by summing up marginal cost at all the levels of output.