The marginal revenue curve of a firm with market power will always lie below its demand curve because of what?

Understand the Problem

The question is asking about the reasons why the marginal revenue curve of a firm with market power is below the demand curve, specifically referring to economic concepts such as the discount effect, substitution effect, and output effect.

More Information

Firms with market power face a downward-sloping demand curve which means they must reduce the price to sell additional units. This reduction in price decreases revenue from previously sold units, even as it generates additional revenue from new sales.

Tips

A common mistake is confusing the substitution effect with the discount effect when analyzing revenue decreases.

Sources

• The marginal revenue curve of a firm with market power | Brainly - brainly.com
• Market Structure and Market Power | Chegg - chegg.com