The fundamental difference between a perfectly competitive and monopolistic profit maximization problem is that, in a competitive market MR:
A)diminishes as quantity increases while in a monopoly it is fixed.
B)is fixed while in a monopoly it diminishes as quantity increases.
C)increases as quantity increases while in a monopoly it is fixed.
D)diminishes as quantity increases while in a monopoly it increases.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the marginal revenue (MR) is constant and equal to the price, because firms are price takers and can sell any quantity at the given market price. In contrast, a monopolist faces a downward-sloping demand curve, meaning that to sell more units, the price must decrease. This causes the marginal revenue to diminish as quantity increases, because not only does the monopolist receive less revenue for the additional units sold, but it also must lower the price on all units sold to sell the additional unit.

The Fundamental Difference Between a Perfectly Competitive and Monopolistic Profit