In the graph, why does the MR line lie below the AR line? A downward-sloping AR line from ₹20 (0 units) to 10 units (₹0), and an MR line from ₹20 down to 5 units (₹0), twice as steep. At 5 units MR is 0 and AR is ₹10 (point K).

In the graph, why does the MR line lie…

In the graph, why does the MR line lie below the AR line?

Question 9

MediumOriginal question

In the graph, why does the MR line lie below the AR line?

A downward-sloping AR line from ₹20 (0 units) to 10 units (₹0), and an MR line from ₹20 down to 5 units (₹0), twice as steep. At 5 units MR is 0 and AR is ₹10 (point K).

To sell one more unit the firm must lower the price on all units, so each extra unit adds less than its priceCorrect answerYour answerCosts rise as output risesCorrect answerYour answerAR is always twice MRCorrect answerYour answerThe government taxes each unitCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

The extra unit brings in its price, but the price cut on the earlier units takes some of that away.
So MR < AR whenever AR is falling; for a straight-line AR, MR is twice as steep.

Concept: Why MR is below AR
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsTotal, average and marginal revenue

Practise this chapter →

Ten questions from Revenue & Producer's Equilibrium, at your own pace.

Practise this chapter →

Ten questions from Revenue & Producer's Equilibrium, at your own pace.

In the graph, why does the MR line lie below the AR line?

Question 9

Explanation