Th3.3: Marginal Revenue

Question 1

For goods with a downwards sloping demand curve…

Answer 1

the elasticity of the curve is linked to marginal revenue

Question 2

If marginal revenue is positive…

Answer 2

when the firms sells the product at a lower price or when they increase output, total revenue still grows and so the demand curve is elastic

Question 3

Refer to PP

Look at Graph 28. Where is the demand curve elastic up to?

Answer 3

up until output Q

Question 4

If MR is negative…

Answer 4

TR decreases as price decreases (or output increases) and so the demand curve is inelastic

Question 5

Refer to PP

Look at Graph 28. What is the demand curve like after point Q?

Answer 5

inelastic

Question 6

When MR = 0…

Answer 6

TR is maximised and the demand curve is unitary elastic

Question 7

What is the demand curve like at point Q?

Answer 7

unitary elastic

Question 8

Explain why the TR curve is U-shaped.

Answer 8

at first, total revenue rises with output (when MR is positive) but then it begins to decline (when MR is negative)