Question

Which of the following is not true for the price-inelastic range of a downsloping demand curve? a) Marginal revenue is negative. b) Profit maximization cannot occur. c) Average revenue cannot be positive. d) Total revenue decreases as sales quantity increases.

Answer 1

c) Average revenue cannot be positive.

The average revenue =total revenue/quantity and the total revenue is positive even if the marginal revenue is negative which means the average revenue is positive up to the total revenue is positive.

at the inelastic range, the MR is negative as the total revenue is maximum at the MR=o and then the TR decreases.

profit maximization is possible up to the unit elastic demand because the profit is maximum at MR=MC and the MC cannot be negative.