For both a monopolist and a monopolistically competitive firm:
A) price equals average total cost.
B) price is above marginal revenue.
C) marginal revenue equals zero.
D) marginal cost equals zero.

Question

Quizplus · Accepted Answer

Both a monopolist and a monopolistically competitive firm have downward-sloping demand curves, meaning that in order to sell more units of output, they must lower the price. However, when a firm lowers the price, they not only sell additional units at the lower price, but they also earn less revenue on their existing units sold. This phenomenon is known as "price discrimination", and it results in the marginal revenue earned on each additional unit being less than the price at which it is sold. Therefore, for both a monopolist and a monopolistically competitive firm, the price they charge is above the marginal revenue earned on each additional unit sold.

For Both a Monopolist and a Monopolistically Competitive Firm