When a firm faces a downward-sloping demand curve, marginal revenue
A)must exceed price because the price effect outweighs the output effect.
B)is less than price because a firm must lower its price to sell more.
C)equals price because the firm sells a standardised product.
D)must exceed price because the output effect outweighs the price effect.

Question

Quizplus · Accepted Answer

When a firm faces a downward-sloping demand curve, it must lower its price to sell additional units, resulting in marginal revenue being less than price. This is because the firm has to give discounts on all units sold to sell one additional unit, reducing the overall revenue obtained from selling that additional unit.

When a Firm Faces a Downward-Sloping Demand Curve, Marginal Revenue