Question

When observing the Marginal Revenue (MR) for the 18th Nickelback CD and noticing that every point is under the Demand curve (the market demand curve), what conclusion can be drawn?

A) The firm is a monopoly.
B) The firm is facing perfectly elastic demand.
C) The firm is experiencing price discrimination.
D) The firm is operating in a perfectly competitive market.

Answer 1

The firm is operating in a perfectly competitive market.

Step-by-step explanation:

The conclusion that can be drawn when observing the Marginal Revenue (MR) for the 18th Nickelback CD and noticing that every point is under the Demand curve is that the firm is operating in a perfectly competitive market. In a perfectly competitive market, the firm's marginal revenue curve is the same as the firm's demand curve. This means that every time a consumer demands one more unit, the firm sells one more unit and revenue increases by exactly the same amount equal to the market price. Therefore, if every point on the MR curve is under the demand curve, it indicates that the firm is operating in a perfectly competitive market.