Explanation:

a) The Average Revenue and Marginal Revenue curves of a perfectly competitive firm are perfectly elastic. The average revenue is perfectly elastic due to a large number of buyers and sellers in a market who can switch to another firm to buy the goods at the original firm if the firm that they purchased the goods from earlier decides to raise the price of its goods. The firm raising the price will gain no revenue. The marginal revenue curve is perfectly elastic because the increase in the revenue from producing an additional unit of output is equal to the price of the good. 

b) In the long-run, a competitive firm earns only normal profits. It can also vary the factors of production and attract new firms by making an abnormal profit. The new firms can easily enter due to the free entry and exit of firms. This will increase the industry supply, which in turn will decrease the industry price. Once the existing firms start making zero economic profit, the new firms will not enter. Also, in the long run, if the firm is making losses, the existing firms will exit the market as they will not be able to compete with them. The industry supply will fall, and www.gradeup.co 39 industry prices will increase. Firms will continue to exist until the remaining ones make a normal profit.

c) In equilibrium, the Marginal Cost Curve of the monopoly firm may be rising, falling, or constant. In the case of decreasing returns to scale, the equilibrium level of output, the slope of MR exceeds the slope of the MR curve. In the case of constant returns to scale, the MC curve is zero, the slope of the MR curve is negative. In the case of increasing returns to scale, the slope of the MR curve is negative, but that of the MC curve is positive.

d) The Marginal Revenue curve of the monopoly firm is below its Average Revenue curve. This is because a monopolist is the sole price maker. He can sell an additional unit of his output only by reducing the price. So, the marginal revenue on the additional unit sold is less than the price or the average revenue.