Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market, but by separate curves for a firm in a monopolistically competitive market?
What will be an ideal response?
A perfectly competitive firm faces a horizontal demand curve and does not have to cut the price to sell a larger quantity, so marginal revenue will always be equal to the selling price, which is represented by the demand curve. A monopolistically competitive firm must cut the price to sell a larger quantity, so its marginal revenue curve will be below its demand curve.
Economics