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Question
Macroeconomics
Posted 2 months ago

Which of the following is true about an imperfectly competitive firm's marginal revenue (MR) curve if it has a linear and downward-sloping demand curve?

Choose 1 answer:
(A) MRM R is constant.
(B) MR increases at first, then decreases.
(c) MR decreases at an increasing rate.
(D) MR decreases and is less than demand.
(E) MRM R is greater than demand.
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Answer from Sia
Posted 2 months ago
Solution
a
Marginal Revenue and Demand Relationship: In imperfect competition, the marginal revenue (MR) curve is always below the demand curve because the firm must lower the price to sell additional units, which affects the revenue gained from selling all units, not just the additional one
b
MR Curve Slope: Given a linear and downward-sloping demand curve, the MR curve will also slope downwards but at a rate that is twice as steep. This is because the reduction in price affects both the additional units sold and all the previous units, leading to a steeper decline in MR compared to the demand curve
c
Correct Answer Choice: Based on the above explanations, the correct answer choice must reflect the fact that MR decreases at a rate that is steeper than the demand curve and is always below the demand curve
Answer
(D) MR decreases and is less than demand.
Key Concept
Marginal Revenue in Imperfect Competition
Explanation
In an imperfectly competitive market, a firm's marginal revenue curve lies below its demand curve and decreases as output increases.

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