Question

One line represents the entire demand curve for a perfectly competitive firm, while for a monopoly, it resembles the __________.

A) Marginal Cost curve
B) Average Revenue curve
C) Total Cost curve
D) Perfectly Elastic curve

Answer 1

For a monopoly, the demand curve it faces resembles the Average Revenue curve, which lies beneath the market demand curve, as the monopolist's marginal revenue is less than the price at which the unit is sold.

Step-by-step explanation:

The demand curve faced by a monopoly is the market demand curve and is therefore negatively sloped. This means the monopolist can sell more only by decreasing its price. For a perfectly competitive firm, the demand curve is perfectly elastic; the firm can sell any amount of goods at the market price. Because the market demand curve is downward-sloping for a monopolist, the additional revenue gained from selling one more unit, or marginal revenue, is less than the price at which the unit is sold. Consequently, the marginal revenue curve for a monopolist lies beneath the market demand curve, making the correct answer B) Average Revenue curve.