Which of the following statements is CORRECT?

Question

BlackTom AI · Accepted Answer

A perfectly competitive firm is a price taker facing a horizontal (perfectly elastic) demand at the market price, so each extra unit sold yields the same additional revenue equal to that price (MR = P). A monopoly faces the market (downward‑sloping) demand curve; to sell an additional unit the monopolist must lower price on that unit and typically on all previous units, so marginal revenue is below price (MR < P) for positive output. Step-by-step reasoning with a simple algebraic illustration: - Let a linear demand for the monopolist be P = a − bQ (a, b > 0). Total revenue TR = P·Q = (a − bQ)Q = aQ − bQ^2. - Marginal revenue is the derivative: MR = d(TR)/dQ = a − 2bQ. - Compare MR to demand (price): P = a − bQ, MR = a − 2bQ. For Q > 0, MR = P − bQ < P. Thus MR lies below the demand curve for a monopolist. - For a perfectly competitive firm, price is given (P = constant), so TR = P·Q and MR = d(TR)/dQ = P. The firm’s demand curve (the price it takes) is therefore the same as its MR curve (a horizontal line at P). Why option b is correct: - It states that the perfectly competitive firm’s MR curve equals its demand curve (true: MR = P) and that the monopoly’s MR is below the demand curve (true: MR < P for downward demand). This matches both the algebra and economic intuition. Why the other options are incorrect: - a: incorrect because monopoly MR is not the same as demand (it is below). - c: incorrect because it reverses the situation; the perfectly competitive firm’s MR is not below demand. - d: incorrect because the perfectly competitive firm’s MR is not below demand; it equals demand. Conclusion: The correct statement is option b, which matches the provided answer.

Which of the following statements is CORRECT?Single choice

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