Marginal revenue lies below the demand curve because
A)average revenue declines as output decreases.
B)average revenue declines as output increases.
C)average revenue stays the same as output changes.
D)marginal revenue always equals average revenue.
E)price increases as output increases.

Question

Quizplus · Accepted Answer

Marginal revenue is the additional revenue generated by selling one more unit of output. As output increases, the firm may have to lower the price in order to sell more units, causing marginal revenue to be lower than the price. This is because the firm is giving up some of the price in order to sell more units, resulting in a lower marginal revenue. Therefore, marginal revenue lies below the demand curve, which represents the price that consumers are willing to pay for each quantity of output.

Marginal Revenue Lies Below the Demand Curve Because