Question

In which market may Marginal Revenue become zero or negative?

• A. Monopoly
• B. Monopolistic competition
• C. Both (A) and (B)
• D. Perfect competition

Hint:

If a firm has to lower its price to sell more, its Marginal Revenue will eventually fall, possibly to zero or below. This happens in all markets except perfect competition.

Answer 1

The Correct Option is C

In any market structure where the firm faces a downward-sloping demand curve, it must lower its price to sell more units. This applies to both Monopoly and Monopolistic Competition. Because the price is lowered on all units sold (not just the additional one), the marginal revenue (MR) gained from selling one more unit is less than the price. As the firm continues to lower its price, the MR will eventually fall to zero and can become negative. In perfect competition, the firm is a price taker, so the MR is constant and equal to the price.