Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduces its price to $9.

Question

Quizplus · Accepted Answer

First, we need to calculate the total revenue before and after the price reduction.
Total revenue before the price reduction = 25 x $10 = $250
Total revenue after the price reduction = 30 x $9 = $270

We can now calculate marginal revenue as the change in total revenue divided by the change in output.
Marginal revenue = ($270 - $250)/(30-25) = $20/5 = $4

Therefore, the correct answer is C. $4.

Suppose a Monopolistically Competitive Firm Sells 25 Units at a Price