Question

Which of the following will be true for both Monopoly and Monopolistic competition?

• A. P>MR
• B. P = MR
• C. P = MC
• D. P = AC

Hint:

For any firm that is not in perfect competition, Price is always greater than Marginal Revenue (P>MR).

Answer 1

The Correct Option is A

As explained in the previous question, both monopolists and monopolistically competitive firms face a downward-sloping demand curve. The demand curve also represents the Average Revenue (AR) or Price (P). For any downward-sloping demand curve, the marginal revenue (MR) curve lies below it. This means that for any given quantity of output (except the very first unit), the price is always greater than the marginal revenue (P>MR). The condition P = MR is characteristic of perfect competition only.