Price also equals average revenue, which is total revenue divided by quantity Equation 9.1 gives total revenue, TR To obtain average revenue (AR), we divide total revenue by quantity, Q Because total revenue equals price (P) times quantity (Q), dividing by quantity leaves us with price Equation 9.2 AR=TR=P×Q=P Q Q The marginal revenue curve is a horizontal line at the market price, and average revenue equals the market price The average and marginal revenue curves are given by the same horizontal line This is consistent with what we have learned about the relationship between marginal and average values When the marginal value exceeds the average value, the average value will be rising When the marginal value is less than the average value, the average value will be falling What happens when the average and marginal values not change, as in the horizontal curves of Panel (b) ofFigure 9.4 "Total Revenue, Marginal Revenue, and Average Revenue"? The marginal value must equal the average value; the two curves coincide Marginal Revenue, Price, and Demand for the Perfectly Competitive Firm We have seen that a perfectly competitive firm’s marginal revenue curve is simply a horizontal line at the market price and that this same line is also the firm’s average revenue curve For the perfectly competitive Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 478