A firm in a competitive market produces and sells 500 door knobs at a price of $10 each.It then chooses to increase its output to 1000 door knobs.After the increase in output, its average revenue will:

Question

Quizplus · Accepted Answer

Average revenue is defined as total revenue divided by the quantity of output sold. In a competitive market, the firm cannot influence the price of its product, so the price remains constant at $10 per door knob. Therefore, total revenue increases proportionally with the increase in output.

Before the increase in output, the firm sold 500 door knobs at a price of $10 each, so its total revenue was $5,000.

After the increase in output to 1000 door knobs, the firm will sell 1000 door knobs at a price of $10 each, so its total revenue will be $10,000.

Dividing this total revenue by the new quantity of output sold (1000), we get an average revenue of $10 per door knob. Therefore, the answer is C, the average revenue will remain the same at $10.

A Firm in a Competitive Market Produces and Sells 500