The marginal revenue curve of a monopolistically competitive firm will always lie:
A) below the firm's demand curve.
B) parallel to the firm's demand curve.
C) parallel to the firm's quantity axis.
D) above the firm's demand curve.

Question

Quizplus · Accepted Answer

The marginal revenue curve of a monopolistically competitive firm will always lie below the firm's demand curve. This is because in a monopolistically competitive market, there are close substitutes for the firm's product, which means that the firm cannot increase the price significantly without losing a large share of its customers to competitors. As a result, the firm faces a downward-sloping demand curve, and its marginal revenue curve will lie below this curve because the firm must lower its price to sell additional units of output.

The Marginal Revenue Curve of a Monopolistically Competitive Firm Will