Question

Suppose a competitive firm and a monopolist are both charging $5 for their respective outputs. One can infer that:________

a. marginal revenue is $5 for both firms.
b. marginal revenue is $5 for the competitive firm and less than $5 for the monopolist.
c. marginal revenue is less than $5 for both firms.
d. the competitive firm is charging too much and the monopolist too little.

Answer 1

Answer: B. Marginal Revenue is $5 for the competitive firm and less than $5 for the monopolost

Explanation: Perfect competition firms are large number of buyers & sellers , homogeneous products & uniform prices , perfect information .

Monopolist refer to a single seller catering many buyers with no close substitues & restricted entry , being the price maker . Eg : Indian national railways

MR Additional revenue from additional unit sold , AR Average revenue per no. of units sold

Average Revenue curve is the demand curve .

** In case of perfect competition , AR = MR = demand curve (as this curve is horizontal parallel to x axis because of uniform price & perfectly elastic demand )

This implies that any amount of goods can be sold at prevailing uniform price .

** In case of monopolist , demand / AR curve is simply downward sloping (just as per law of demand) and the MR curve lies below it . Such because MR falls more steeply , has more slope than AR curve because of the former being affected by singular additional units & the latter being affected by all the units sold .

Answer 2

b. marginal revenue is $5 for the competitive firm and less than $5 for the monopolist.

Step-by-step explanation:

A perfect competition is characterised by many buyers and sellers of homogenous goods and services.

Firms in a perfect competition are price takers. Price is set by forces of demand and supply.

In a perfect competition, price = marginal cost = marginal revenue =$5.

A monopoly is when there's only one firm in the industry.

A monopoly firm is fhe price setter.

In a monopoly, price is greater than marginal revenue. Therefore, the marginal revenue is less than $5.

I hope my answer helps you.