Explain why the average and marginal revenue curves for a perfectly competitive firm are horizontal while those of a monopoly slope downwards.

The average revenue curve for a perfectly competitive firm is horizontal due to the fact that it faces perfectly elastic demand at the market determined price. This is because there is a significant amount of buyers and sellers in the market alongside perfect information meaning that if a firm was to raise its price, customers in the market would move to a different producer and purchase the good at the original price and the firm raising their price would receive no revenue. Marginal revenue is also horizontal because the increase in revenue from producing one more unit of output is equal to the price of the good meaning it remains constant, thus horizontal. 

On the other hand a monopoly firm, due to it being the only producer, is the industry. due to the industry facing a downward sloping demand curve so does the monopoly firm. This means that it can only increase sales by reducing price or increase price by reducing output. Therefore they are price makers or quantity setters. The demand curve shows the quantity demanded at any price e.g. a water company might sell 2 billion gallons of water at 1p per gallon. The price per gallon is equal to the AR curve, therefore D=AR. If average revenue is falling then marginal revenue is falling, but at a faster rate and thus it is also downward sloping.