The marginal revenue (MR) curve of a perfectly competitive firm is horizontal. The MR curve of a monopoly firm is:

• A. upward sloping and lies above the demand curve
• B. downward sloping and lies below the demand curve
• C. vertical at the profit-maximizing quantity
• D. horizontal at the market price

Answer: (B)

Verified step by step guidance

1. Recall that in a perfectly competitive market, the firm is a price taker, so the marginal revenue (MR) is equal to the market price and is constant, resulting in a horizontal MR curve.
2. Understand that a monopoly firm faces the entire market demand curve, which is typically downward sloping, meaning the firm must lower the price to sell additional units.
3. Recognize that because the monopoly must reduce price to sell more, the marginal revenue decreases with each additional unit sold and is therefore less than the price at each quantity.
4. Conclude that the monopoly's MR curve is downward sloping and lies below the demand curve, reflecting that MR is less than price for all quantities beyond the first unit.
5. Use this understanding to eliminate other options: the MR curve is not upward sloping, not vertical at the profit-maximizing quantity, and not horizontal at the market price for a monopoly.