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For a monopolist, which of the following is true about the average revenue and marginal revenue values?
AMR cannot be negative, but AR can be zero
BAR cannot be zero, but MR can be zero or negative
CBoth AR and MR are always equal to price
DAR is twice as steep as the MR curve
Answer & Solution
Correct answer: B. AR cannot be zero, but MR can be zero or negative
1. AR equals price, and a positive quantity always sells at some positive price, so AR stays above zero.
2. As output grows, MR keeps falling because price must be cut on all units.
3. Once the loss on existing units outweighs the gain, MR turns zero then negative.
4. Hence AR cannot be zero while MR can be zero or negative.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit III "Price-Output Determination under Different Market Forms", p.13_
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