If a perfectly competitive firm has a 70 percent probability of a high demand of $5 and a 30 percent chance of a low demand of $4, what is the firm's expected marginal revenue?

Question

Quizplus · Accepted Answer

Expected marginal revenue is calculated by taking the weighted average of the marginal revenues associated with each possible outcome, where the weights are the probabilities of each outcome. 
Expected marginal revenue = (0.7 x $5) + (0.3 x $4) = $3.50 + $1.20 = $4.70 
Therefore, the best choice is C.

If a Perfectly Competitive Firm Has a 70 Percent Probability