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Question
Microeconomics
Posted 9 months ago
If a firm must lower its price to sell more of a good, which of the following must also be true?
Choose 1 answer:
A Its marginal revenue curve is lower than its demand curve.
(B) Its marginal revenue curve is upward-sloping.
(c) Its marginal revenue curve is equal to its demand curve.
DD) Its marginal revenue curve is higher than its average total cost curve.
(E) Its marginal revenue curve is the same as its marginal cost curve.
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Answer from Sia
Posted 9 months ago
Solution
a
Marginal Revenue and Demand Curve: If a firm must lower its price to sell more of a good, it indicates that the firm is facing a downward-sloping demand curve. This is typical in imperfect competition, such as monopolistic competition or monopoly
b
Marginal Revenue Curve: In such market structures, the marginal revenue (MR) curve lies below the demand (D) curve because the firm must reduce the price on all units sold to sell an additional unit. This results in MR being less than the price (P) for each additional unit sold
Answer
A Its marginal revenue curve is lower than its demand curve.
Key Concept
Marginal Revenue Curve in Imperfect Competition
Explanation
In imperfect competition, the marginal revenue curve lies below the demand curve because the firm must lower the price to sell additional units, causing marginal revenue to be less than the price.
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