With the help of diagrams, explain the difference between AR curves of sellers under perfect competition, monopoly and monopolistic competition.
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Why is AR curve of a firm under perfect competition parallel to X-axis but negatively sloped under monopoly? 
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Draw AR curves under monopoly and monopolistic competition. Explain the difference.

It should be kept in mind that the demand curve (or price line) faced by a firm for its product is nothing but AR curve of the firm. It is so because AR means price and demand curve shows a relationship between price and quantity demanded. Therefore, demand curves in different market situations are, in fact, AR curves from firm's point of view.

(i)    AR curve under perfect competition. In perfect competition, AR (as well as MR) curve is a horizontal straight line parallel to X-axis as shown in Fig. 4.7. It is constant at all levels of output. The reason is that the firm is the price taker. At the given price, the firm can sell any number of units of its commodity as it wishes which means with sale of every additional unit, additional revenue (i.e., MR) and average revenue will be equal to price. As a result AR (and MR) remains constant as proved in Q.4.4. Therefore, AR curve becomes parallel to X-axis.

Fig. 4.8

Difference. But the difference between the two curves is that AR curve under monopoly is less elastic whereas AR curve under monopolistic competition is more elastic. Its reason is that in monopoly market no close substitute of the commodity is available whereas in monopolistic competition many close substitutes of differentiated goods are available.

(iii)    AR curve under monopolistic competition. In monopolistic competition, AR curve is sloping down to the right as indicated in Fig. 4.9. Its reason is that a firm can sell more by lowering the price of its commodity. And this is what the shape of AR curve reflects, i.e., with fall in price, sale has increased. As a result, AR curve is sloping down rightward. The curve is more elastic due to availability of close substitutes.

Fig. 4.9