Question

What happens to marginal revenue when total revenue increases?

Answer 1

When total revenue increases, marginal revenue (MR) is positive.

This means that each additional unit sold adds something to the total revenue. However: 

• If TR increases at a constant rate, then MR is constant.
• If TR increases at a decreasing rate, then MR is falling but still positive.
• Once TR reaches its maximum, MR becomes zero.
• If TR starts decreasing, MR becomes negative.