The correct answer is C. AR curve lies below the MR curve.
In a monopoly market, the firm is the only seller of a good or service. This means that the firm has a great deal of market power and can set the price of its product. The firm’s demand curve is therefore downward-sloping, which means that the firm can charge a higher price for its product and still sell some units.
The firm’s marginal revenue curve is also downward-sloping, but it lies below the demand curve. This is because the firm must lower its price to sell additional units. For example, if the firm is currently selling 10 units at a price of $10, it can sell 11 units at a price of $9.99. However, the firm’s revenue from selling 11 units is not $9.99 x 11 = $109.99. This is because the firm had to lower its price to sell the 11th unit, so it lost revenue on the first 10 units. The firm’s total revenue from selling 11 units is therefore $100.
The firm’s marginal revenue curve is always below its demand curve because the firm must lower its price to sell additional units. This means that the firm’s marginal revenue is always less than its price.
In conclusion, the relationship between average and marginal revenue curves in a monopoly market is as follows: AR curve lies below the MR curve.