The marginal revenue curve of a perfectly competitive firm

Question

Quizplus · Accepted Answer

In perfect competition, the firm is a price taker and cannot influence the market price. Hence, the demand curve faced by the firm is perfectly elastic and thus, the marginal revenue (MR) curve is also the demand curve faced by the firm. Therefore, statement D is correct. Statement A is incorrect because the vertical intercept of the MR curve is zero, which is not equal to one-half of the demand curve's intercept. Statement B is incorrect because the MR curve coincides with the average revenue (AR) curve in perfect competition, and both lie on the same horizontal line as the price. Similarly, statement C is incorrect because the MR curve intersects the AR curve at its own maximum point, not from above or below.

The Marginal Revenue Curve of a Perfectly Competitive Firm