1.

Explain the relation between marginal revenue and average revenue when a firm is able to sell more quantity of output : (i) at the same price. (ii) only by lowering the price.

Answer» <html><body><p></p><a href="https://interviewquestions.tuteehub.com/tag/solution-25781" style="font-weight:bold;" target="_blank" title="Click to know more about SOLUTION">SOLUTION</a> :(i)If the market price is unaffected by variations in the firm's output, then the firm's demand curve, its AR curve and MR curve will coincide in the same <a href="https://interviewquestions.tuteehub.com/tag/horizontal-1029056" style="font-weight:bold;" target="_blank" title="Click to know more about HORIZONTAL">HORIZONTAL</a> line.It means, the revenue from every additional unit (MR) is equal to AR. (ii) MR will be less than AR at all the output levels.When <a href="https://interviewquestions.tuteehub.com/tag/firms-989820" style="font-weight:bold;" target="_blank" title="Click to know more about FIRMS">FIRMS</a> can increase their volume of sales only by decreasing the price, then AR falls with increase in sale. It means, revenue from every additional unit (i.e. MR) will be less than AR. As a result, both AR and MR curves <a href="https://interviewquestions.tuteehub.com/tag/slope-15649" style="font-weight:bold;" target="_blank" title="Click to know more about SLOPE">SLOPE</a> downwards from left to <a href="https://interviewquestions.tuteehub.com/tag/right-1188951" style="font-weight:bold;" target="_blank" title="Click to know more about RIGHT">RIGHT</a>.</body></html>


Discussion

No Comment Found

Related InterviewSolutions