Relation between Firm’s AR and MR Curves | Seller’s Revenue

In Fig. 3.1, the firm’s AR and MR curves are given to be AB and AC. The AR curve tells the firm’s average revenue (= p) at any q (quantity sold), and it also tells the quantity sold (q) or the demand for the good at any price (p).

That is why the firm’s AR curve is also the firm’s demand curve (i.e., demand curve for the firm’s product). Therefore, in Fig. 3.1, the curve AB is also the firm’s demand curve. Suppose that, at any point, N, on this curve, the price of the good (p = AR) is OP₀ = NQ₀ and the quantity sold or demanded (q) is OQ₀. Again, when the quantity sold is OQ₀, the firm’s MR is SQ₀ and at p = OP₀ the value of e is NB

e = NB/NA. That is, at any point like N, on the AR curve or the demand curve, the values of four variables is obtained.

These are:

Price = AR, quantity demanded = quantity sold, MR and e. Of these four variables the relation between p – AR, MR and e may be obtained at any point (N) on the demand curve for the product in the following way. At the point N,