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Difficulty: MediumRevenue Concepts and Relationships

A firm sells 88 units of a commodity at a price of ₦50\text{₦}50 per unit. In order to increase its sales to 99 units, it reduces the price to ₦46\text{₦}46 per unit for all items sold. What is the marginal revenue, in Naira (₦\text{₦}), generated from selling the 9th unit?

Answer: 14 ₦

Answer

The marginal revenue generated from selling the 9th unit is 14 Naira.
Total revenue at 8 units is 8×50=4008 \times 50 = 400 Naira. Total revenue at 9 units is 9×46=4149 \times 46 = 414 Naira. Marginal revenue is the addition to total revenue from selling the 9th unit, which is 414−400=14414 - 400 = 14 Naira.

Step-by-Step Solution

1
Calculate initial total revenue.
Total Revenue for 8 units is 8×50=4008 \times 50 = 400 Naira.
Total revenue is computed as price multiplied by quantity (TR=P×QTR = P \times Q).
2
Calculate new total revenue after output expansion.
Total Revenue for 9 units is 9×46=4149 \times 46 = 414 Naira.
The lower price applies to all units sold.
3
Calculate marginal revenue of the additional unit.
Marginal Revenue = 414−400=14414 - 400 = 14 Naira.
Marginal revenue is the change in total revenue resulting from selling one extra unit (MR=ΔTRΔQMR = \frac{\Delta TR}{\Delta Q}).

Key Concept

Marginal Revenue Calculation under Imperfect Competition
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Topics

Revenue Concepts and Relationships

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