Under monopoly, MR curve lies:
Options
AAbove AR
BBelow AR
CParallel to AR
DCoincides with AR
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Price Determination in Different MarketsPYQ - Dec 2022Question 80 of 20
All Questions Correct Answer
✅ Option b — Below AR
All Options:
- AAbove AR
- BBelow AR
- CParallel to AR
- DCoincides with AR
Detailed Solution & Explanation
To understand the relationship between the MR and AR curves under monopoly, we need to consider the basic principles of microeconomics.
• The Average Revenue (AR) curve represents the total revenue earned by a firm per unit of output sold, which is essentially the demand curve for the firm's product.
• The Marginal Revenue (MR) curve represents the additional revenue earned by selling one more unit of output.
• Under monopoly, the firm is the sole supplier of the product in the market, and it faces a downward-sloping demand curve, which means that to sell more, the firm must lower the price.
• As a result, the MR curve lies below the AR curve because when the firm sells an additional unit, it not only gets a lower price for that unit but also reduces the price for all previous units sold.
The correct answer is right because the MR curve takes into account the decrease in revenue from previous units when the price is lowered to sell an additional unit.
Key wrong options, such as Above AR and Coincides with AR, are incorrect because they do not reflect the impact of the downward-sloping demand curve on the MR curve under monopoly.
About This Chapter: Price Determination
Paper
Paper 4: Business Economics
Weightage
15%
Key Topics
Perfect Competition, Monopoly, Monopolistic, Oligopoly
This high-weightage chapter covers all four market structures: Perfect Competition, Monopoly, Monopolistic Competition, and Oligopoly. Students learn how price and output are determined under each structure, along with key concepts like Price Discrimination, Kinked Demand Curve, and the conditions of equilibrium (MR = MC).
View Official ICAI SyllabusExam Strategy Tip
This chapter carries the highest weightage (~15%). Focus on features of each market, the shape of AR and MR curves, and understand why firms in Perfect Competition are 'Price Takers' while Monopolists are 'Price Makers'.
Key Concepts to Understand
Related Comparison Tables
More Questions from Price Determination in Different Markets
Under which of the following forms of market structure does a firm have no control over the price of its product?
A firm encounters its "shutdown point" when:
Kinked demand curve hypothesis is designed to explain in context of oligopoly
Which of the following is not a characteristic of a "Price Taker"?
Price discrimination will be profitable only if the elasticity of demand in different markets is:
Which of the following is not an essential condition of pure competition?
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