Question

 A firm faces AR = ₹10 and elasticity of demand E = 0.5. What will be the sign of MR, and what happens to TR if the firm increases output?

Options

• MR is positive; TR rises

• MR is zero; TR is constant

• MR is negative; TR falls

• MR equals AR; TR rises at a constant rate

Answer 1

MR is negative; TR falls

Explanation:

With E<1 (inelastic demand), MR becomes negative; when the firm increases output by cutting price further, total revenue decreases.