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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Definitions:

Cash Inflows

Money being received by a business or individual, from various sources like sales, investments, or loans.

Option To Wait

The flexibility embedded in investment decisions allowing investors to delay making an investment to obtain more information.

Net Income

The amount of profit left after all operating expenses, taxes, and interest are deducted from total revenue.

Variable Cost

Expenses that are directly linked to the scale of production activity.