Can marginal revenue be negative?
Understand the Problem
The question is asking whether marginal revenue, which is the additional revenue earned from selling one more unit of a good or service, can be negative. This situation typically occurs when the price reduction needed to sell an additional unit outweighs the additional revenue generated from that unit, resulting in a net decrease in total revenue. The inquiry also implies an understanding of basic economic concepts related to revenue and pricing.
Answer
Yes
Yes, marginal revenue can be negative. This occurs when selling additional units leads to a decrease in total revenue, which can happen if the company has to reduce prices to sell those extra units.
Answer for screen readers
Yes, marginal revenue can be negative. This occurs when selling additional units leads to a decrease in total revenue, which can happen if the company has to reduce prices to sell those extra units.
More Information
Marginal revenue becomes negative typically in markets where firms have some control over prices, such as monopolies or monopolistic competition, and need to cut prices on all units sold to sell extra units.
Tips
A common mistake is to assume that marginal revenue is always positive; understanding market structures and pricing strategies is crucial.
Sources
- What Does It Mean If Marginal Revenue Is Negative? - Investopedia - investopedia.com
- how can marginal revenue be negative? : r/AskEconomics - Reddit - reddit.com
- what is Marginal Revenue? | DealHub - dealhub.io
