When marginal revenue is negative,the
A) lost revenues associated with the price effect outweigh the revenue gains created by the output effect.
B) lost revenues associated with the price effect are outweighed by the revenue gains created by the output effect.
C) output effect is negative.
D) firm is maximizing revenues.
E) firm cannot be maximizing profits.

Question

Quizplus · Accepted Answer

When marginal revenue is negative, it means that producing one more unit of output is decreasing total revenue. This is because the revenue gained from selling an additional unit is less than the revenue lost from lowering the price to sell that unit. Therefore, the lost revenues associated with the price effect outweigh the revenue gains created by the output effect.

When Marginal Revenue Is Negative,the