The marginal revenue lies ________ the demand curve because there is a(n)________ effect whenever the price is lowered.
A) above; price
B) below; price
C) below; output
D) above; output
E) on; price

Question

Quizplus · Accepted Answer

Marginal revenue is the change in revenue when one additional unit is sold. Whenever the price is lowered, the quantity demanded increases, but the increase in revenue from selling the additional units is offset by the lower price. This means that as output increases, the marginal revenue will decrease, and it will lie below the demand curve. Therefore, the best choice is B, where the marginal revenue lies below the demand curve because there is a price effect whenever the price is lowered.

The Marginal Revenue Lies ________ the Demand Curve Because There