The marginal revenue of a monopolistically competitive firm
A)cannot be negative because the price the firm charges will always be greater than zero.
B)can be negative if the firm charges a high price.
C)can be negative if the firm charges a low price.
D)will equal average revenue.

Question

Quizplus · Accepted Answer

The marginal revenue of a monopolistically competitive firm can be negative if the firm charges a low price. This is because in a monopolistically competitive market, there are many close substitutes for the firm's product, and so the demand for the firm's product is relatively elastic. As a result, if the firm lowers its price to try to sell more units, it will not be able to make up the revenue it loses from the lower price through additional sales. This means that the marginal revenue of the additional units sold will be negative.

The Marginal Revenue of a Monopolistically Competitive Firm