A firm operating in an imperfectly competitive market expands its output from 20 units to … — JAMB UTME

A firm operating in an imperfectly competitive market expands its output from $20$ units to $25$ units, causing its average revenue to fall from $\text{₦}50$ to $\text{₦}44$ . What is the firm's marginal revenue per unit over this range of output?

$\text{₦}20$ Answer
B
$\text{₦}44$
C
$\text{₦}100$
D
$\text{₦}6$

Answer

The marginal revenue per unit over this output range is

\text{���}20

Total revenue at

20

units is

20 \times \text{₦}50 = \text{₦}1,000

, and at

25

units it is

25 \times \text{₦}44 = \text{₦}1,100

. The increase in total revenue is

\text{₦}100

across

5

units, yielding a marginal revenue of

\frac{100}{5} = \text{₦}20

per unit.

Step-by-Step Solution

Calculate initial total revenue (

TR_1

) and final total revenue (

TR_2

)

TR_1 = Q_1 \times AR_1 = 20 \times 50 = \text{₦}1,000

and

TR_2 = Q_2 \times AR_2 = 25 \times 44 = \text{₦}1,100

Total revenue is the product of output quantity and average revenue (price).

Determine the change in total revenue (

\Delta TR

) and the change in quantity (

\Delta Q

)

\Delta TR = 1,100 - 1,000 = \text{₦}100

and

\Delta Q = 25 - 20 = 5\text{ units}

Marginal revenue measures the rate of change of total revenue with respect to output.

Calculate marginal revenue (

MR

)

MR = \frac{\Delta TR}{\Delta Q} = \frac{100}{5} = \text{₦}20

Marginal revenue formula is

MR = \frac{\Delta TR}{\Delta Q}

Key Concept

Calculation of Marginal Revenue from Average Revenue and Quantity Changes

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