The main points of significance of revenue curves are as under:
1. Estimation of Profits and Losses:
A producer aims at maximizing his profits. His profits will be maximum where he finds AR > AC.
The maximum difference between AR and AC will show maximum profits. A producer finds out whether he is making supernormal profits, normal profits or sustaining losses.
2. Equilibrium:
The second point of the importance of AR and MR curves is to know how much a producer should produce. In this case, the concept of MR is very important. The firm will be in equilibrium at that point where MR = MC. This is a general condition for the firm under all market situations. MR = MC determines output, price, profits or loss.
3. Capacity Utilization:
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It is through revenue curves that we come to know whether a firm is producing at its full capacity or not. In other words, the firm will be producing at its full capacity, if AR curve is tangent to AC curve at its minimum point. It is possible only under perfect competition but not under imperfect competition like monopoly, monopolistic competition etc.
4. Price Changes:
The concepts of AR and MR are also useful to the factor services in determining their price. In factor pricing like rent, wages, interest and profits, they become inverted U-shaped. The AR and MR curves become ARP and MRP (Average Revenue productivity and Marginal Revenue Productivity). It is an important tool in explaining the equilibrium of the firm under different market conditions.