Why is it true that under monopolistic competition the price is above marginal revenue while under pure competition price is equal to marginal revenue?

What will be an ideal response?


The reason is that under pure competition the firm can sell as much as output as it desires at the going market price. Therefore total revenue will always increase by the amount of the price with each new additional unit sold. However, under monopolistic competition the firm must reduce price to sell more output. Therefore total revenue still increases but by less than the price because the price concession is not just made on additional units but on all previous units as well.

Economics

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The policy directive from the FOMC is carried out by

A) the presidents of the district banks. B) the presidents of commercial banks that are members of the Federal Reserve System. C) the account manager at the Federal Reserve Bank of New York. D) private dealers in the bond market.

Economics

In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of

A) a fixed cost. B) a variable cost. C) an implicit cost. D) an opportunity cost. E) a sunk cost.

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In a monopoly, producer surplus is

A) larger than under perfect competition. B) is equal to that under perfect competition. C) smaller than under perfect competition. D) None of these choices is true.

Economics

Which of the following is subtracted from national income to get to personal income?

A. retained earnings B. depreciation C. personal interest income D. personal taxes

Economics