Every firm that has the ability to affect the price of the good or service it sells will
A)have a perfectly elastic demand curve.
B)have a marginal revenue curve that lies below its demand curve.
C)earn a short-run profit but break even in the long run.
D)shut down in the short run.

Question

Quizplus · Accepted Answer

A firm that has market power (ability to affect price) will have a downward sloping demand curve. However, since the firm's actions impact the market, it must take into account the effect on total revenue when it changes its output. This means that the marginal revenue (MR) curve will lie below the demand curve. The firm will maximize profit by producing the quantity where MR=MC.

Every Firm That Has the Ability to Affect the Price