Page 138 - DECO101_MICRO_ECONOMICS_ENGLISH

Unit 9: Cost Concepts

Notes
Figure 9.8: Relationship between MR and TR

Price, Revenue

O TR Quantity

Price, Revenue MR is the slope of TR curve

O Quantity
MR

As you can see, figure 9.8 depicts the relationship between TR and MR. TR can be zero in two
situations- when no quantity of the commodity is sold or when any amount of commodity is sold
at a zero price. Therefore, it has an inverted U shape curve. It starts from the origin, rises and
reaches maximum and then falls. The slope of TR curve is the change in total revenue per unit of
output, which is nothing but the marginal revenue.

Notes The first order derivative of the function which is to be optimised should be

zero. The second order derivative of the function to be optimised should be positive for
minimisation and negative for maximisation.

It is also relevant to the relation between AR and MR. AR curve can be:

1. A straight line, or
2. Convex to the origin, or
3. Concave to the origin
Now we will determine the relation of MR to AR with respect to all the three situations.

!
Caution

When AR is a straight line, MR will lie midway to AR (figure 9.9 (a))

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