Which of the following statements is true about marginal revenue?
A)If marginal revenue is zero, it means that quantity demanded falls to zero when a firm changes its price.
B)If marginal revenue is negative, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price.
C)If marginal revenue is positive, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price.
D)Marginal revenue increases as price falls and quantity sold increases.

Question

Quizplus · Accepted Answer

Marginal revenue is the additional revenue generated by selling one more unit of a good. If marginal revenue is negative, it means that the revenue lost from lowering the price to sell one additional unit is greater than the additional revenue generated by selling that unit. This typically occurs when demand is price elastic and the firm must lower prices to sell additional units. Option A is incorrect because a zero marginal revenue does not imply that quantity demanded falls to zero. Option C is incorrect because a positive marginal revenue means that the revenue gained from selling one additional unit is greater than the revenue lost from lowering the price to sell additional units. Option D is only partially correct, as marginal revenue does increase as quantity sold increases, but it is incorrect to say that marginal revenue increases as price falls as this depends on the elasticity of demand.

Which of the Following Statements Is True About Marginal Revenue