A marketing manager has just estimated that her firm's marginal revenue will become negative if a proposed price cut is made.

This means that:A. demand must be very elastic.

B. marginal cost must be negative already.

C. the firm is in pure competition.

D. more units may be sold-but total revenue will be less than it would be at the higher price.

E. None of the above-a firm's marginal revenue can't be negative.

Question

Business

Tristian Vaughan

24 November, 04:58

A marketing manager has just estimated that her firm's marginal revenue will become negative if a proposed price cut is made.

This means that:A. demand must be very elastic.

B. marginal cost must be negative already.

C. the firm is in pure competition.

D. more units may be sold-but total revenue will be less than it would be at the higher price.

E. None of the above-a firm's marginal revenue can't be negative.

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Answers (1)

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Mayra Murray · Answer 1

D. More Units may be sold - but total revenue will be less than it would be at the higher price

Explanation:

Marginal Revenue (MR) represents the additional revenue that can be obtained if sales of a product are increased by one unit.

MR = is change in Total Revenue/Change in Total Output Quantity

In this situation as envisaged by the Marketing Manager, a price cut will lead to an increase in revenue based on more (marginal) units of the product sold at a lower price. The challenge, however, is that this increase in income will not be enough to offset the decrease in revenue that will result as a result of the price cut.

In other words, the organisation is better off selling fewer products or units at its current price than sell more (marginal units) at a reduced price.