When the marginal-revenue curve is falling, the average-revenue curve is also falling.

Question

Quizplus · Accepted Answer

This statement is true. Marginal revenue is the additional revenue gained from producing one more unit of output, while average revenue is the total revenue divided by the quantity produced. When the marginal-revenue curve is falling, it means that additional units of output are generating less revenue than previous units. This also means that the total revenue is increasing at a decreasing rate. Therefore, the average-revenue curve, which is the total revenue divided by quantity produced, must also be falling because the additional revenue gained from producing one more unit is less than the average revenue earned from previous units.

When the Marginal-Revenue Curve Is Falling, the Average-Revenue Curve Is