Question

Under which condition marginal revenue can be negative? Explain with the help of an example.

Answer 1

MR can be negative, though only when average revenue is decreasing. Or, when price is declining as under monopoly and monopolistic competition. In case of perfect competition, it is not possible where price remains constant for a firm.

When price =Rs.4

, and output =10
TR10=P×Q

=4×10=40

When price falls to Rs 3, and output =11
TR11=P×Q

=3×10=33

Accordingly,
MR=TR10−TR10
=33−40
=−7
Implying that MR is negative.