Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?
A)The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies above its demand curve.
B)The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies below its demand curve.
C)The monopolistically competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a perfectly competitive firm lies below its demand curve.
D)The marginal revenue curve of a monopolistically competitive firm lies below its demand curve; the marginal revenue curve of a perfectly competitive firm lies above its demand curve.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker and the demand curve facing the firm is perfectly elastic, meaning that the firm can only sell its output at the market price. Therefore, the firm's marginal revenue curve is the same as its demand curve. In contrast, a monopolistically competitive firm faces a downward-sloping demand curve because its product is differentiated from its competitors. As such, the firm's marginal revenue curve lies below its demand curve. Therefore, the answer is B.

Which of the Following Describes a Difference Between the Marginal