Answer to Question #317629 in Macroeconomics for AnhadSingh

Question

How Total revenue changes with change in output when Marginal Revenue is positive

Answer 1

Marginal revenue is directly related to total revenue because it measures the increase in total revenue from selling one additional unit of a good or service. Marginal revenue follows the law of diminishing returns, which states that any increases in production will result in smaller increases in output. Meaning the optimal level has passed. Because it costs money to make and sell an additional unit, as long as marginal revenue is above marginal cost, then a company is making profits. Once the marginal revenue equals marginal cost, it makes no sense for a company to produce or sell more units of its products or services.