Step 1: Build a small numeric example:
Suppose a monopolist's output-price schedule is Q=1,P=10; Q=2,P=9; Q=3,P=8.
Step 2: Compute TR, AR, MR from this table:
TR: 1×10=10, 2×9=18, 3×8=24. AR: 10/1=10, 18/2=9, 24/3=8 (always equal to price, as expected). MR: TR(1)-TR(0)=10, TR(2)-TR(1)=18-10=8, TR(3)-TR(2)=24-18=6.
Step 3: Observe the AR-MR gap:
Notice MR (10, 8, 6) falls faster than AR (10, 9, 8) — because selling the 2nd unit at Rs. 9 not only adds Rs. 9 but also means the 1st unit now earns Rs. 9 instead of Rs. 10, a Rs. 1 loss that must be netted against the new unit's revenue, pulling MR below AR.
Final Answer:
TR=Price×Quantity, AR=Price, MR=addition to TR per extra unit; MR lies below AR whenever the firm must cut price to sell more (imperfect competition), and MR=AR when price is constant (perfect competition).