The shape of the firm's marginal revenue curve depends on

Question

Quizplus · Accepted Answer

The shape of the firm's marginal revenue curve depends on the number of competitors it has. If the market is highly competitive, the marginal revenue curve will be relatively elastic (flat), because the firm can only sell its output at the going market price. If the firm is a price taker, it cannot raise its price without losing all its customers, and so the marginal revenue it receives for each additional unit sold is equal to the market price. On the other hand, if the market is very concentrated and dominated by a few large firms, the marginal revenue curve will be relatively inelastic (steep), because the firm can exert some pricing power and raise its price without losing all its customers. In this case, the firm's marginal revenue will be less than the market price, because it has to lower its price in order to sell more output. Therefore, the answer is C.

The Shape of the Firm's Marginal Revenue Curve Depends on