When marginal revenue is positive,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 relatively small compared to the price effect.
D) firm is maximizing revenues.
E) firm cannot be maximizing profits.

Question

Quizplus · Accepted Answer

When marginal revenue is positive, it means that the revenue gained from producing an additional unit of output is greater than the revenue lost due to lowering the price. In other words, the output effect (increased revenue from selling an additional unit) outweighs the price effect (reduced revenue from lowering the price). Therefore, choice B is the correct answer. Choices A, C, and E are incorrect because they either do not make sense or are not necessarily true when marginal revenue is positive. Choice D is not necessarily true as well, as maximizing revenues is not the same as maximizing profits.

When Marginal Revenue Is Positive,the