The relationship between AR and MR of a firm under imperfect competition is given below:
Both Monopoly and Monopolistic Competition fall under the category of Imperfect Competition. Therefore, AR and MR curves slope downwards as more units can be sold only by reducing the price. However, there is one major difference between AR and MR curves of monopoly and monopolistic competition.
Under monopolistic competition, the AR and MR curves are more elastic as compared to those of Monopoly. It happens because of the presence of close substitutes under monopolistic competition and the absence of close substitutes under monopoly. So, when the price of a commodity is increased in both the markets, then proportionate fall in demand under monopoly is less than proportionate fall in demand under monopolistic competition.
