How does the slope and placement of the marginal revenue curve compare to the demand curve in imperfectly competitive markets?
A)The marginal revenue curve is parallel to and above the demand curve.
B)The marginal revenue curve is parallel to and below the demand curve.
C)The marginal revenue curve has a steeper negative slope and is above the demand curve.
D)The marginal revenue curve has a steeper negative slope and is below the demand curve.

Question

Quizplus · Accepted Answer

In imperfectly competitive markets, the demand curve is sloping downward while the marginal revenue curve is even steeper and lies below the demand curve. This is due to the fact that in these markets, firms face downward-sloping demand curves but have some control over the price of the goods they sell. In order to sell more output, a firm must reduce the price of its goods, and this reduction in price applies to all units of output sold. As a result, the revenue gained from selling an additional unit is not equal to the price of that unit, as it is in perfect competition. Rather, the revenue gained is equal to the price of that unit minus the revenue lost on all prior units that needed a price reduction in order to be sold. This explains why the marginal revenue curve is even steeper than the demand curve and lies below it.

How Does the Slope and Placement of the Marginal Revenue