When marginal revenue is negative for a linear (inverse) demand function, increases in output will cause total revenues to
A)increase.
B)decrease.
C)remain unchanged.
D)there is not sufficient information to classify the elasticity of demand.

Question

Quizplus · Accepted Answer

When marginal revenue is negative for a linear (inverse) demand function, it means that the demand is elastic. An increase in output will decrease total revenues because the increase in quantity sold is offset by the decrease in price. Therefore, the best choice is B, which indicates that total revenues will decrease.

When Marginal Revenue Is Negative for a Linear (Inverse) Demand