Marginal revenue can become negative for
A)both competitive and monopoly firms.
B)competitive firms but not for monopoly firms.
C)monopoly firms but not for competitive firms.
D)neither competitive nor monopoly firms.

Question

Quizplus · Accepted Answer

Marginal revenue can become negative for monopoly firms because they have market power and can charge a higher price for their product, but as they increase output, the price decreases and eventually the marginal revenue may become negative. On the other hand, competitive firms face a horizontal demand curve, meaning the price remains constant regardless of the level of output they produce, so their marginal revenue can never become negative.

Marginal Revenue Can Become Negative for