When Marginal Revenue Is Negative for a Linear (Inverse) Demand

question 28

Multiple Choice

When marginal revenue is negative for a linear (inverse) demand function, increases in output will cause total revenues to

• A)increase.
• B)decrease.
• C)remain unchanged.
• D)there is not sufficient information to classify the elasticity of demand.

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Definitions:

Materials Quantity Variance

The variance between the real amount of materials consumed during manufacturing and the anticipated amount, as per norms.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and are a significant portion of the total cost of production.

Standard Cost Card

A document that lists the standard costs associated with producing a unit of product, including materials, labor, and overhead.

Fixed Manufacturing Overhead

Costs that do not vary with the level of production or sales, such as salaries of production supervisors and depreciation of factory equipment.