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Q12 (CAPF/2019) Economy › Basic Concepts & National Income › Market structure types Answer Verified

Which one of the following is NOT correct?

Result
Your answer: —  Â·  Correct: B
Explanation

In a perfectly competitive market, firms are price takers, meaning the market price is fixed for them. Consequently, the Average Revenue (AR) and Marginal Revenue (MR) curves are identical and perfectly elastic (horizontal) [1]. In the long run, free entry and exit ensure that competitive firms earn only normal profits, where price equals average cost [3]. For a monopoly, the firm faces a downward-sloping demand curve (AR curve). To sell additional units, the monopolist must lower the price for all units, which causes the Marginal Revenue (MR) to fall faster than AR. Therefore, the MR curve lies below the AR curve, not above it. Regarding equilibrium, a monopoly maximizes profit where MR equals Marginal Cost (MC); this equilibrium can occur regardless of whether the MC curve is rising, falling, or constant, provided the second-order condition for maximization is met [1].

Sources

  1. [1] Microeconomics (NCERT class XII 2025 ed.) > Chapter 4: The Theory of the Firm under Perfect Competition > 4.2 REVENUE > p. 55
  2. [3] https://mathabhangacollege.ac.in/wp-content/uploads/2024/02/Comparision-Between-Monoply-and-perfect-Competotion_compressed.pdf
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