In a diagram of perfect competition, the marginal revenue line moves up and down when there is exit and entry, respectively, because

Question

Quizplus · Accepted Answer

In perfect competition, the marginal revenue line represents the price at which firms are willing to supply additional units. When new firms enter the market, the supply increases, leading to a decrease in price (marginal revenue line moves down). Conversely, when firms exit the market, the supply decreases, leading to an increase in price (marginal revenue line moves up). This is because the overall market supply adjusts with entry and exit, not the market demand.

In a Diagram of Perfect Competition, the Marginal Revenue Line