A business can sell one chair at a price of $600. At a price of $500 it can sell two chairs. Based on this information, marginal revenue will:

Question

Quizplus · Accepted Answer

Marginal revenue is the additional revenue that a company earns by selling one more unit of a product. For the first chair sold at $600, the marginal revenue equals the price because it's the first unit sold. For the second chair, the total revenue for selling two chairs is $1000 ($500 each), so the marginal revenue of selling the second chair is $400 ($1000 total revenue - $600 revenue from the first chair). This is less than the price of the second chair ($500), hence the marginal revenue equals the price for the first chair but is less than the price for the second chair.

A Business Can Sell One Chair at a Price of $600