Refer to Table 10-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?
A) output effect = $3.00; price effect = $0.50
B) output effect = $1.50; price effect = $2.00
C) output effect = $5.50; price effect = -$2.00
D) output effect = $4.00; price effect = -$0.50

Question

Quizplus · Accepted Answer

The output effect is the revenue gained from selling one more unit at the new price, while the price effect is the loss in revenue from selling all previous units at the lower price. Here, the output effect is $5.50, and the price effect is -$2.00.