Question

In perfect competition, the firm's marginal revenue curve __________.

• A. cuts its demand curve from above, going from left to right.
• B. always lies below its demand curve.
• C. cuts its demand curve from, going from left to right.
• D. is the same as its demand curve.

Answer 1

The correct option is D is the same as its demand curve.

All producers are price takers and cannot influence the price. They simply accept the singular price determined in the market. Any variation in its output will have a negligible effect on the total supply and effectively the market price, that the effect can safely be assumed to be 0. The firm may choose to sell additional output at the same industry price and thus the marginal revenue (extra revenue earned) will always be equal to price. And thus the MR curve acts as the demand curve.