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Market Structure and Market Power

The marginal revenue curve of a firm with market power will always lie below its demand curve because of:_____.
a. the discount effect and the substitution effect.
b. the substitution effect and the income effect.
c. the output effect and the discount effect.
d. the output effect and the substitution effect.

User Nathan Lee
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Answer: c. the output effect and the discount effect.

Step-by-step explanation:

The output effect is how firms with market power control their production in honest to make profit.

A firm with market farm will have to reduce it's marginal revenue curve to increase sales.

The marginal revenue will therefore be below the Demand curve to show that the marginal revenue has to be reduced for a team to sell more goods.

User Mike Nishizawa
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