Refer to the above graph of a representative firm in monopolistic competition.What does line 4 represent?
A) Demand
B) Marginal cost
C) Marginal revenue
D) Average total cost

Question

Refer to the above graph of a representative firm in monopolistic competition.What does line 4 represent?
A) Demand 
B) Marginal cost 
C) Marginal revenue 
D) Average total cost

Quizplus · Accepted Answer

Line 4 represents marginal revenue, which is the additional revenue earned by the firm for selling one additional unit of output. In monopolistic competition, the firm faces a downward-sloping demand curve and therefore must lower the price to sell more units, resulting in diminishing marginal revenue.

Refer to the Above Graph of a Representative Firm in Monopolistic