Identify the true statements below.(i) when a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price
(ii) when a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price
(iii) marginal revenue is the same for both competitive and monopoly firms
A)(i) and (ii)
B)(i) and (iii)
C)(ii) and (iii)
D)(ii) only

Question

Quizplus · Accepted Answer

For a competitive firm, when it sells an additional unit of output, its revenue increases exactly by the price of that unit because the firm is a price taker and selling more does not affect the market price. For a monopoly firm, selling an additional unit of output can indeed lower the price for all units sold, thus the revenue increase from selling one more unit is less than the price of the unit. Marginal revenue is not the same for competitive and monopoly firms; in competitive markets, marginal revenue equals the price, while in monopolies, marginal revenue is less than the price due to the downward-sloping demand curve.

Identify the True Statements Below