Under perfect competition, the marginal revenue curve will be _______.

rising from left

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vertical straight line

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falling from left to right

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perfectly elastic and horizontal

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Solution

The correct option is B perfectly elastic and horizontal
All producers are price takers and thus 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.

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Why is the average revenue curve of a monopolist less elastic than the average revenue curve of a firm under monopolistic competition? Explain.

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