Using a graph, show why marginal revenue is always less than price
What will be an ideal response?
The demand curve slopes down so the firm must lower price to sell another unit. It receives the price for that unit, shown in the figure above by rectangle Q1cb Q1+1. However, it lowers price so it receives less on the Q1 units it could have sold at P1. This reduced revenue is area P1acP2. The extra revenue then is Q1cb Q1+1 - P1acP2, which is less than P2. Hence, the marginal revenue is less than the price.
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With no change in fiscal policy, the budget
a. will run a surplus during a recession and a deficit during a boom. b. deficit will rise during a recession and fall during a boom. c. deficit will fall during a recession and rise during a boom. d. will remain unchanged by adverse economic conditions.
A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except
A) new rivals entering the market. B) a decrease in demand for its product. C) demand for the firm's product becomes more elastic. D) a decrease in the number of rival products.