Notice the three labels on the Demand curve; D, MR, and AR.
- MR - Marginal Revenue
- is the extra revenue a firm receives from selling one more unit
of output. Since the demand curve is horizontal the firm need
not lower price to sell more. Therefore, the demand curve is the marginal revenue curve.
- AR - Average Revenue
- is simply total revenue divided by total sales and will always
be the market price (P* in this instance) as long as all units are sold at the same price.
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