Question

What changes should take place in total revenue so that marginal revenue is falling?

Answer 1

• To make marginal revenue (MR) fall, total revenue (TR) must increase at a decreasing rate. This means that with each additional unit of output sold, the increase in TR becomes smaller and smaller. 
• This situation usually happens under imperfect competition or monopoly, where the firm has to reduce the price to sell more units. As a result, both AR (Average Revenue) and MR start to fall.
• However, MR falls more steeply than AR and always lies below it. This declining TR growth leads to a drop in MR, which can eventually become zero or even negative if TR starts decreasing.