The Marginal Revenue Curve Lies Below the Demand Curve for a Competitive

question 131

Multiple Choice

The marginal revenue curve lies below the demand curve for a competitive price searcher because

• A) in order for a competitive price searcher to sell an extra unit, it must cut the price on all units. The lowered price offsets the additional revenue from the extra unit sold, so the marginal revenue is lower than the price.
• B) in order for a competitive price searcher to sell an extra unit, it must increase its advertising. The cost of advertising offsets the extra revenue generated by the extra sales, so the marginal revenue is lower than the price.
• C) whenever a competitive price searcher discovers a profit-maximizing pricing policy, the economic profit it generates attracts new competitors into the industry, driving marginal revenue below the price.
• D) none of the above apply. The marginal revenue curve is the demand curve for a competitive price searcher.

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