Question

Monopolistic Competition

A profit-maximizing firm in a monopolistically competitive maket is characterized by which of the following:

A. Average revenue exceeds marginal revenue.

B. Marginal revenue exceeds average revenue,

C. Average revenue is equal to marginal revenue.

D. Revenue is always maximized along with profit.

I picked D?

Answer 1

I would go with A.

Draw a typical monopoly model, with a demand curve and a marginal revenue curve. Draw a MC curve. At the optimal Q, What is the price (aka Average revenue)? What is the MR value?

BTW, with linear-drawn demand and MR "curves", Revenue is maximized when MR is zero. However, this is not the optimal profit point (unless MC

Answer 2

I would go with A.

Draw a typical monopoly model, with a demand curve and a marginal revenue curve. Draw a MC curve. At the optimal Q, What is the price (aka Average revenue)? What is the MR value?

BTW, with linear-drawn demand and MR "curves", Revenue is maximized when MR is zero. However, this is not the optimal profit point (unless MC is zero also)