a. Explain how marginal revenue curves are derived from total revenue curves. b. Explain why marginal...

a. Explain how marginal revenue curves are derived from total revenue curves.

b. Explain why marginal revenue curves might slope downwards.

c. Explain why marginal revenue curves might be horizontal.

Solutions

Expert Solution

a. Marginal revenue divides the change in total revenue by the change in the quantity sold.
Therefore marginal revenue is the slope of the total revenue curve.
Total revenue is the amount of sales of goods and services.
Marginal revenue is directly related to total revenue because it measures the change in revenue that results from a change in the amount of goods and services sold.
To calculate marginal revenue,divide the change in total revenue by the change in the quantity sold.
Therefore marginal revenue is the slope of total revenue curve.
Marginal revenue falls as the monopolist raises its out put.
The downward sloping market demand curve indicates that the new market price will be lower than before.

b. The downward sloping of marginal revenue curve implies that price a monopolist expects to receive will not remain constant while it increases its out put.

c. The marginal revenue curve for a perfectly competitive firm is horizontal due to the fact that it faces perfectly elastic demand at the market determined price.

Rahul Sunny answered 1 year ago

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