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Revenue in Monopolistic Competition quiz

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  • What type of demand curve do firms in monopolistic competition face?
    Firms in monopolistic competition face a downward sloping demand curve.
  • How does a price decrease affect revenue in monopolistic competition?
    A price decrease leads to a lower revenue per unit (price effect) but increases the quantity sold (output effect).
  • What are the two effects on revenue when a firm changes its price in monopolistic competition?
    The two effects are the price effect (change in revenue per unit) and the output effect (change in revenue from selling more or fewer units).
  • Why is marginal revenue always less than price in monopolistic competition?
    Marginal revenue is always less than price because lowering the price to sell more units reduces the revenue gained from previous units sold at a higher price.
  • How is total revenue calculated in monopolistic competition?
    Total revenue is calculated as price multiplied by quantity sold.
  • What is the relationship between average revenue and price in monopolistic competition?
    Average revenue is always equal to the price, which also represents the demand curve.
  • How do you calculate marginal revenue in monopolistic competition?
    Marginal revenue is calculated as the change in total revenue divided by the change in quantity.
  • What happens to marginal revenue as quantity increases in monopolistic competition?
    Marginal revenue decreases as quantity increases and can even become negative if additional units reduce total revenue.
  • In the cable subscription example, what happens to total revenue as price decreases and quantity increases?
    Total revenue increases up to a point as price decreases and quantity increases, but eventually starts to decrease if price drops too low.
  • Where does the marginal revenue curve lie in relation to the demand curve in monopolistic competition?
    The marginal revenue curve always lies below the demand curve.
  • What does it mean if marginal revenue is negative?
    Negative marginal revenue means that selling an additional unit actually reduces total revenue.
  • How does the calculation of profit in monopolistic competition compare to that in monopoly?
    Profit is calculated the same way in both structures, using total revenue minus total cost.
  • What is the key condition for profit maximization in monopolistic competition?
    Profit is maximized where marginal revenue equals marginal cost.
  • Why can't firms in monopolistic competition keep marginal revenue constant like in perfect competition?
    Because they face a downward sloping demand curve, so selling more units requires lowering the price, which reduces marginal revenue.
  • What does the average revenue curve represent in monopolistic competition?
    The average revenue curve represents the demand curve, showing the price at each quantity sold.