[amp_mcq option1=”AR = MR” option2=”AR > MR” option3=”AR < MR" option4="TR = TC" correct="option1"]
The correct answer is A. AR = MR.
In a monopolistic market, the firm is the only seller of a good or service. This means that it has a great deal of market power and can set its own prices. However, the firm also faces a downward-sloping demand curve, which means that it cannot charge any price it wants. If it charges too high a price, consumers will simply buy from other firms.
The firm’s marginal revenue curve is below its demand curve. This is because when the firm sells an additional unit of output, it must lower its price on all units sold. This means that the additional revenue from selling the last unit is less than the revenue from selling the previous unit.
The firm will maximize its profits by producing the quantity of output where marginal revenue equals marginal cost. At this point, the firm’s average revenue (AR) will also equal its marginal revenue (MR). This is because the firm’s demand curve is tangent to its marginal cost curve.
In conclusion, in a monopolistic equilibrium, AR = MR.
Here is a brief explanation of each option:
- Option A: AR = MR. This is the correct answer. In a monopolistic equilibrium, the firm’s average revenue (AR) will equal its marginal revenue (MR). This is because the firm’s demand curve is tangent to its marginal cost curve.
- Option B: AR > MR. This is not the correct answer. In a monopolistic equilibrium, the firm’s average revenue (AR) will equal its marginal revenue (MR). This is because the firm’s demand curve is tangent to its marginal cost curve.
- Option C: AR < MR. This is not the correct answer. In a monopolistic equilibrium, the firm’s average revenue (AR) will equal its marginal revenue (MR). This is because the firm’s demand curve is tangent to its marginal cost curve.
- Option D: TR = TC. This is not the correct answer. In a monopolistic equilibrium, the firm’s total revenue (TR) will not equal its total cost (TC). This is because the firm’s demand curve is downward-sloping, which means that the firm must lower its price in order to sell more output. This will result in the firm’s total revenue being less than its total cost.