-Refer to the table above.When the firm lowers price from $8 to $7,marginal revenue is less than $7 because
A) marginal cost is greater than $3.
B) the consumer only pays $4 for the fourth unit.
C) the firm is charging $1 less for each of the first three units of output.
D) demand is perfectly elastic.
E) the firm only collects $4 for the fourth unit.

Question

-Refer to the table above.When the firm lowers price from $8 to $7,marginal revenue is less than $7 because
A) marginal cost is greater than $3. 
B) the consumer only pays $4 for the fourth unit. 
C) the firm is charging $1 less for each of the first three units of output. 
D) demand is perfectly elastic. 
E) the firm only collects $4 for the fourth unit.

Quizplus · Accepted Answer

When the firm lowers the price, it must charge the lower price for all units sold, not just the additional unit. Therefore, the marginal revenue is less than the new price because the firm loses revenue on the units that could have been sold at the higher price.

-Refer to the Table Above