When a firm's average revenue curve is downward-slopping , it's price elasticity of demand will be
Zero
Greater than one
One
Between zero and infinity
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When a firm faces a downward-sloping demand curve, then marginal revenue will be less than average revenue and can even be negative.
This is because, if a firm cuts price, it gets a lower average price but also loses revenue it could otherwise have made from selling units at a higher price.
When marginal revenue is positive. It means a cut in price will increase total revenue. This means that demand is price elastic (% change in demand greater than % change in price)
However, if a firm cuts price and marginal revenue is negative (total revenue falls). This implies that demand is price inelastic. (% change in demand less than % change in price)
At quantity of 6, where MR = 0, at this point, PED = 1 (unitary elasticity)
This shows the elasticity of demand for a straight line demand curve varies.
The correct answer is:
D. Between zero and infinity
Explanation:
When a firm's average revenue (AR) curve is downward-sloping, it means the firm faces a normal demand curve (like in imperfect competition).
For such a demand curve:
At higher prices → demand is more elastic (>1)
At lower prices → demand becomes more inelastic (
