Which of the following characterizes the relation between total revenue and marginal revenue for a firm with market power?
A) Marginal revenue is negative when total revenue is increasing.
B) Marginal revenue is positive when total revenue is decreasing.
C) Marginal revenue is zero when total revenue is maximized.
D) Marginal revenue is greater than total revenue.

Question

Quizplus · Accepted Answer

For a firm with market power, marginal revenue will always be less than the price it charges for a good. As the firm lowers the price to sell more units, the price reduction affects all units sold, leading to a decrease in average revenue. Therefore, marginal revenue will intersect average revenue at the point of maximum total revenue, which means that marginal revenue will be zero when total revenue is maximized.

Which of the Following Characterizes the Relation Between Total Revenue