Revenue under Perfect Competition and Imperfect Competition

Revenue Under Perfect Competition

The term "perfect competition" describes a market environment where there are numerous buyers and sellers of the same homogeneous good. The interaction of two market forces, namely supply and demand factors, determines the price of the good. A firm is a price taker in a situation of perfect competition. As a result, it gradually sells its output at the going market rate. When a result, the price remains constant as output levels rise. In other words, due to the complete understanding of the market and product homogeneity, the price of the product remains constant at any level of output. As a result, all businesses accept prices.

According to the aforementioned schedule, when the seller increases his sales proportionately (for example, by selling 1 kilogram, 2 kg, 3 kg, and 4 kg) at a fixed price (Rs. 10), total revenue also rises correspondingly (say, Rs. 10, Rs.20, and Rs.40). However, for each escalating level of output, average and marginal revenues remain constant (let's say at Rs. 10). (sales). In other words, for any output level, AR = MR.

Relation between TR and MR:

MR is constant since TR varies positively and proportionately with output. In other words, MR depicts the rate of change in TR relative to output change. As a result, MR doesn't change while TR grows at a steady rate.

Revenue under Imperfect Competition (Monopoly and Monopolistic Competition)

A monopoly is a severe instance of unfair competition. A market arrangement known as monopoly has just one seller. The commodity it produces has no direct competitors, and admission by other businesses is prohibited. As a result, the seller has complete control over the commodity's supply. A monopolist sets the price of his commodity based on the law of demand. He is the one who sets the price. As a result, the vendor can only sell more units of the output for less money.

In other words, the connection between output and price is inverse. As a result, overall revenue grows at a decreasing pace while output grows at the same rate. However, average and marginal revenue both continue to decline. However, marginal revenue is declining at a faster rate than average revenue.

Another imperfect competition market structure is monopolistic competition, which is a type of market in which a few or large number of enterprises provide differentiated goods that are close substitutes. The market is a subject of imprecise information. It incorporates the fundamental components of both monopoly and perfect competition. Businesses that are subject to monopolistic competition are free to manufacture and market a product that is identical, branded, or otherwise distinctive. Laws prohibit other businesses from creating and marketing a branded product owned by another business.This grants a company monopoly control over the creation, set-aside, and selling of its own branded goods. This means that every company has complete control over the supply of their product. In other words, businesses may have monopoly power over their product as a result of differentiated products and incomplete market knowledge. As a result, individuals choose the product's pricing themselves. They set the price of the goods according to the rule of demand. As a result, revenue trends under monopolistic competition mirror those under monopoly.

Reference

Koutosoyianis, A (1979), Modern Microeconomics, London Macmillan