Question

What happens to total revenue when the marginal revenue is negative?

Answer 1

• When marginal revenue (MR) is negative, it means that total revenue (TR) is decreasing.
• In this case, selling an extra unit of output actually reduces the total revenue. This happens because the firm has to lower the price so much to sell more that it earns less overall; the loss in revenue from the lower price outweighs the gain from selling one more unit.