question archive Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales
Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales
Subject:EconomicsPrice:2.88 Bought3
Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be:
a. Less than $12,
b. More than $12,
c. $12,
d. Any of the above may be correct depending on the price elasticity of demand for the product.
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The correct answer is c) $12
It is given in the question that upon selling 150 units of output, a firm earns $1800 of revenue. Now, this means that the average revenue of the firm is $12 (total revenue divided by output sold). Now, if the output of the firm increases to 200 units, then the total revenue will also increase to $2400 as the average revenue is $12 per unit. Therefore, the average revenue for the 200th unit will also remain the same, i.e., $12.
