alleryWhich statement about the average revenue and marginal revenue curves of a monopolist is correct?
AMR lies above AR at every output
BBoth are horizontal and identical to price
CAR slopes up while MR slopes down
DBoth slope downward and MR lies below AR
Answer & Solution
Correct answer: D. Both slope downward and MR lies below AR
1. A monopolist faces the downward sloping market demand curve, which is its AR curve.
2. To sell more it must lower price on all units, so each extra unit adds less than its price.
3. Therefore MR is below AR at every positive output and also slopes downward.
4. The MR curve falls twice as steeply and lies below AR.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit III "Price-Output Determination under Different Market Forms", p.13_
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