Question

The Marginal Revenue curve facing a monopoly firm is

		a) identical to its demand and average revenue curve.
		b) perfectly elastic.
		c) below its demand and average revenue curve.
		d) the same as it is for a perfectly competitive firm.

For a firm in a perfectly competitive market

		a) The firm must decrease price if it wants to sell an additional unit of the product
		b) The demand curve is downward sloping
		c) Price = Average Revenue = Marginal Revenue
		d) All the above
		e) None of the above

Which of the following results of a competitive market tends to promote equity?

		a) P = MC
		b) AR = AC
		c) MC = AC
		d) All of the above
		e) None of the above

Answer 1

1. The correct answer is that the marginal revenue curve is below the average revenue and demand curve of the monopoly. This is because in monopoly, the average revenue curve is twice the marginal revenue curve. Also, MR lies below the AR curve because the monopolist can only sell more if it reduces its price.

The other options are incorrect because the demand curve for a perfect competition is elastic and equal to the average revenue curve. It is also perfectly elastic. However the revenue curves for a monopolist are different from that of the perfectly competitive market.

2. The correct answer is Price = Average Revenue = Marginal Revenue.

This is because the firms in perfectly competitive market can sell as much as they want at the existing prices. If they change the price, the consumers will go to other firms.

This is the reason why the other options are incorrect.

3. The correct answer is average revenue is equal to average cost. This will promote equity in the perfectly competitive market. It is equivalent to setting the price at the average cost levels.