Which one of the following is NOT correct ?

The Average Revenue and Marginal Revenue curves of a perfectly competitive firm are perfectly elastic

The Marginal Revenue curve of the monopoly firm is above its Average Revenue curve

In the long-run, a competitive firm earns only normal profits

In equilibrium, the Marginal Cost Curve of the monopoly firm may be rising, falling or constant

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CAPF – 2019

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For a monopoly firm, the demand curve it faces is the market demand curve, which is typically downward sloping. The Average Revenue (AR) curve is identical to the demand curve. Because the monopolist must lower the price on all units sold to sell an additional unit, the Marginal Revenue (MR) from selling that extra unit is less than the price (AR). Therefore, the MR curve for a monopolist lies *below* the AR curve, not above it.

– Perfectly competitive firms are price takers; their demand curve is horizontal (perfectly elastic), and AR = MR.
– Monopolists are price makers; their demand curve is downward sloping.
– For a downward-sloping demand curve, MR is always less than AR (for Q > 0) and lies below the AR curve.
– In the long run, perfect competition allows for free entry/exit, leading to normal profits.
– A monopolist maximizes profit where MR=MC, and the MC curve can have various slopes in the relevant range.

Statement A is correct for a perfectly competitive firm’s individual demand curve. Statement C is correct for perfect competition in the long run. Statement D is correct; a monopolist’s MC curve can be rising, falling, or constant where it intersects MR, as long as the second-order condition (MC cuts MR from below or MR is falling faster than MC) for profit maximization is met.

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