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Production And Costs

Question

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Explain the relation between average revenue and marginal revenue when a firm can sell an additional unit or a good by lowering the price.

Solution

Relationship between AR and MR:

AR and MR both decreases but MR is less than AR (MR < AR).
Both MR and AR fall but the fall in MR is double than that in AR.
MR become zero and negative but AR can never be zero.

Some More Questions From Production And Costs Chapter

What effect does an increase in input price have on supply curve?

What effect does an increase in excise tax have on supply curve of product?

If a farmer grows rice and wheat, how will an increase in price of wheat affect supply curve of rice?

What is meant by market period?

How will an increase in number of firms shifts the market supply curve?

What is the shape of supply curve during very short (market period)?

What is the shape of supply curve during short or long period?

What is the price elasticity associated with a straight line supply curve passing through the origin?

Name three factors that can shift a supply curve.

Give two examples where technological progress leads to a shift in the supply curve.

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