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A firm is able to sell more quantity of a good only by lowering the price. The firm’s marginal revenue, as he goes on selling, would be :(Choose the correct alternative)
a. Greater than average revenue
b. Less than average revenue
c. Equal to average revenue
d. Zero
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Solution
The correct option is (b). A firm can sell more quantity of a good only by lowering the price of the good. There is a negative relationship between the price of the good and the demand for the good in a monopoly market. If the average revenue falls, then the marginal revenue also falls but faster than AR and therefore MR < AR.
Concept: Total, Average and Marginal Revenue
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