Question

Define marginal revenue. State the relation between marginal revenue and average revenue when a firm :

(i) is able to sell more quantity of output at the same price.

(ii) is able to sell more quantity of output only by lowering the price.

Answer 1

Marginal revenue is the addition to total revenue from producing one more unit of output

(i) MR = AR at all the output levels

(ii) MR will be less than AR at all the output levels