Question

In a scenario where Marginal Revenue (MR) is $9 and the Price is $19, which statement correctly compares the MR for a monopolistic firm versus a perfectly competitive (PC) firm?"

A) For a PC firm, the MR would be $19, while a monopoly sees an MR of $9 due to price discrimination.
B) Both a PC firm and a monopoly would have an MR of $19 in this scenario.
C) The MR for a monopoly is $19, whereas a PC firm's MR would also be $19.
D) A PC firm would have an MR of $9, while a monopoly can set its MR to any value it desires.

Answer 1

The correct answer is Option A: For a perfectly competitive firm, MR would be equal to the price, $19, but for a monopolistic firm, MR can be different from the price—$9 in the given scenario.

Step-by-step explanation:

In comparing the Marginal Revenue (MR) for a monopolistic firm versus a perfectly competitive (PC) firm, it's essential to understand the key differences between these market structures. In a perfectly competitive market, firms find their profit-maximizing level of output where MR equals Marginal Cost (MC), and crucially, MR is equal to price (MR = P). Therefore, if the price is $19, the MR would also be $19 for a PC firm. In contrast, for a monopoly, MR is not equal to the price because changes in the quantity of output affect the price. Hence, the MR for a monopolistic firm could indeed be $9 while the price is $19 if marginal revenue diminishes with each additional unit sold due to price discrimination or downward-sloping demand.

The correct statement regarding the given scenario is Option A: For a PC firm, the MR would be $19, similarly to monopoly; however, a monopoly sees an MR of $9 due to its unique ability to influence market prices and output levels. Unlike a PC firm, a monopolist must lower its price to sell additional units, resulting in an MR that is less than the price.