For a monopoly, the marginal revenue curve lies below the demand curve.

Question

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In a monopoly, the firm is the sole producer of a good or service with no close substitutes, meaning they have market power to set the price. As a result, the firm faces a downward-sloping demand curve. However, the marginal revenue curve is below the demand curve because as the monopoly firm produces more, it must lower the price to sell each additional unit of output, resulting in a decrease in revenue per unit. This means that the marginal revenue (the additional revenue earned from selling one more unit) is less than the price of the good, which is represented by the demand curve.

For a Monopoly, the Marginal Revenue Curve Lies Below the Demand