10. In a monopolistically competitive market, the firm's marginal revenue schedule:
A. is the same as the demand schedule.
B. lies below the demand schedule.
C. lies above the demand schedule.
D. is not dependent on the demand schedule.

Question

10.    In a monopolistically competitive market, the firm's marginal revenue schedule:
A.    is the same as the demand schedule.
B.    lies below the demand schedule.
C.    lies above the demand schedule.
D.    is not dependent on the demand schedule.

BlackTom AI · Accepted Answer

A firm with market power faces a downward‑sloping demand curve, so marginal revenue (MR) falls faster than price (the demand curve) — therefore MR lies below demand.

1. Relevant knowledge points and concepts
- In monopolistic competition firms have some market power and face a downward‑sloping demand curve: to sell extra units they must lower price on all units sold.
- Total revenue TR = P(Q)·Q. Marginal revenue MR = d(TR)/dQ. For a downward‑sloping P(Q), MR < P for any positive Q.
- This contrasts with perfect competition, where demand (price) is horizontal and MR = P.

2. Complete reasoning process (step by step)
- Start from a linear example demand to illustrate: P = 10 − Q.
- Compute TR and MR to compare MR and demand.

3. Calculations with intermediate steps
- TR = P·Q = (10 − Q)Q = 10Q − Q^2.
- MR = d(TR)/dQ = 10 − 2Q.
- Demand (price) = P = 10 − Q.
- Compare: MR = (10 − 2Q) = (10 − Q) − Q = P − Q.
- For any Q > 0, MR = P − Q < P. At Q = 0 they are equal, but for positive output MR lies below the demand curve.

4. Why the correct answer is correct
Because the firm must reduce price to sell additional units, the incremental revenue gained from selling one more unit (MR) is less than the price at which that unit sells (P). Thus the MR schedule lies below the demand schedule in monopolistic competition.

5. Why the other options are incorrect
- A is wrong: MR is not the same as demand except under perfect competition (horizontal demand).  
- C is wrong: MR cannot lie above demand when demand slopes downward — reductions in price lower revenue on prior units.  
- D is wrong: MR is directly derived from the demand schedule, so it depends on demand.

6. Conclusion
Therefore the correct choice is B: the marginal revenue schedule lies below the demand schedule, which matches the provided answer B.

10. In a monopolistically competitive market, the firm's marginal revenue schedule: A. is the same as the demand schedule. B. lies below the demand schedule. C. lies above the demand schedule. D. is not dependent on the demand schedule.单项选择题

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