Examkin

Question

Difficulty: MediumRevenue Concepts and Relationships

A firm operating in an imperfect market sells 1010 units of a commodity at ₦15\text{₦}15 per unit. To expand its sales to 1111 units, it reduces the price to ₦14\text{₦}14 per unit. What is the marginal revenue obtained from selling the 11th11\text{th} unit?

  1. ₦4\text{₦}4Answer
  2. B
    ₦14\text{₦}14
  3. C
    ₦154\text{₦}154
  4. D
    ₦1\text{₦}1

Answer

₦4\text{₦}4
The addition to total revenue from selling the 11th11\text{th} unit is found by subtracting the total revenue derived from 1010 units (₦150\text{₦}150) from the total revenue derived from 1111 units (₦154\text{₦}154). This yields ₦4\text{₦}4.

Step-by-Step Solution

1
Calculate Total Revenue (TR1TR_1) for 1010 units
TR1=10×₦15=₦150TR_1 = 10 \times \text{₦}15 = \text{₦}150
Total revenue is computed as output quantity multiplied by unit price (TR=P×QTR = P \times Q).
2
Calculate Total Revenue (TR2TR_2) for 1111 units
TR2=11×₦14=₦154TR_2 = 11 \times \text{₦}14 = \text{₦}154
Finding the new total revenue after price reduction and output increase.
3
Calculate Marginal Revenue (MRMR) of the 11th11\text{th} unit
MR=TR2−TR1=₦154−₦150=₦4MR = TR_2 - TR_1 = \text{₦}154 - \text{₦}150 = \text{₦}4
Marginal revenue is the additional revenue generated by producing and selling one extra unit (MR=ΔTR/ΔQMR = \Delta TR / \Delta Q).

Key Concept

Calculation of Marginal Revenue in Imperfect Competition
Rate this question

Topics

Revenue Concepts and Relationships

More questions from this topic