Question

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.

Answer 1

Answer: Option B

Explanation: Marginal revenue is the additional revenue from selling one more unit.

A. Marginal revenue equals zero means there is no additional revenue from selling one more unit, the demand could be positive.

B. Negative marginal revenue shows that the revenue earned from selling additional unit is less than the additional unit sold before.

C. Positive marginal revenue shows that the revenue earned from selling additional unit is more than the additional unit sold before.

D. Marginal revenue increases when price and quantity both increases.