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CA Foundation · Business Economics · Price Determination in Different Markets

When the marginal revenue of a firm is positive but falling as output rises, which of the following must be true of its total revenue?

Total revenue is rising at a decreasing rate. Marginal revenue is the slope of the total revenue curve, so a positive MR means TR is increasing, while a falling MR means each extra unit adds less. TR only starts falling once MR turns negative.

  1. ATotal revenue is falling
  2. BTotal revenue is rising at a decreasing rateCorrect
  3. CTotal revenue is rising at an increasing rate
  4. DTotal revenue is constant

Explanation

MR is the slope of the TR curve. Positive MR means TR is increasing. A falling MR means the slope is flattening, so TR rises at a decreasing rate. TR would fall only if MR became negative.

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