Which of the following best describes the relationship between the demand curve (D) and the marginal revenue curve (MR) for a monopoly firm that has a downward sloping linear demand curve?

Choose 1 answer:
(A) $D$ is greater than MR for some quantities, less than MR for others
(B) $D$ crosses MR when $D$ is unit elastic
(C) $D$ is less than MR
(D) $D$ is greater than $M R$
(E) $D$ equals $M R$

Question

Which of the following best describes the relationship between the demand curve (D) and the marginal revenue curve (MR) for a monopoly firm that has a downward sloping linear demand curve?

Choose 1 answer:
(A) $D$ is greater than MR for some quantities, less than MR for others
(B) $D$ crosses MR when $D$ is unit elastic
(C) $D$ is less than MR
(D) $D$ is greater than $M R$
(E) $D$ equals $M R$

Accepted Answer

∻Solution∻ ‖ a ⋮ Relationship between Demand Curve and Marginal Revenue Curve: In a monopoly market with a downward-sloping linear demand curve, the marginal revenue curve lies below the demand curve. This is because the monopoly firm must lower the price to sell additional units, which affects the revenue gained from selling all units, not just the additional unit. ‖ ‖ b ⋮ Mathematical Relationship: The marginal revenue curve has the same intercept as the demand curve but twice the slope. If the demand curve is $P = a - bQ$, where $P$ is the price, $Q$ is the quantity, and $a$ and $b$ are constants, then the marginal revenue curve is $MR = a - 2bQ$. ‖ ‖ c ⋮ Point of Unit Elasticity: The demand curve is unit elastic where marginal revenue is zero. This is the point where the revenue from selling an additional unit is exactly offset by the revenue lost due to the price decrease necessary to sell that unit. ‖ ∻Answer∻ ⚹ (B) $D$ crosses MR when $D$ is unit elastic ⚹ ∻Key Concept∻ ⚹ Marginal Revenue and Demand Curve Relationship in Monopoly ⚹ ∻Explanation∻ ⚹ The marginal revenue curve for a monopoly firm with a downward-sloping linear demand curve lies below the demand curve and intersects it at the point where the demand is unit elastic. ⚹◊What impact does the relationship between the demand curve and the marginal revenue curve have on a monopoly firm's pricing strategy in the long run?⍭ Generate me a similar question◊

Sia