Chapter 11R, Problem 17MCQ

To determine

The correct option for given situation where reason for lying marginal revenue curve below the demand curve in monopoly competition.

Answer to Problem 17MCQ

Option d is correct answer.

Explanation of Solution

Explanation for correct option:

d.

Marginal revenue curve lies below the demand curve in monopoly competition as the monopolist firms reduces the price of the output in order to sell additional unit. This will result in less marginal revenues. Therefore, option d is correct.

Explanation for incorrect options:

a.

Due to income effect, consumers shift to the cheaper substitutes if prices are increased. But in monopoly competition, there is only one seller selling unique products. Therefore, option a is incorrect. b.

Quantity is supplied to fulfill the demand of their customers. In monopoly firms, the seller is single that has to cater everyone’s demand. Therefore, option b is incorrect. c.

In monopoly firms, price discrimination is not possible. Therefore, option c is incorrect.

e.

In monopoly competition firms, there is no perfect substitute available. Therefore, option e is incorrect.

Economics Concept Introduction

Marginal revenue: MR refers to the revenue that is generated by the firm by selling one additional unit in the market.

Demand curve: Demand curve refers to the relationship between price and the output at which consumers are ready to purchase.