Wendy has a monopoly in the retailing of motor homes.She can sell five per week at $21,000 each.If she wants to sell six,she can only charge $20,000 each.The price effect of selling the sixth motor home is:
A)$20,000.
B)-$15,000.
C)-$5,000.
D)$25,000.

Question

Quizplus · Accepted Answer

The price effect is the change in revenue resulting from a change in price. In this case, the price effect of selling the sixth motor home is the difference in revenue between selling five at $21,000 and selling six at $20,000.

If Wendy sells five motor homes at $21,000 each, her total revenue is 5 x $21,000 = $105,000.

If she sells six motor homes at $20,000 each, her total revenue is 6 x $20,000 = $120,000.

The difference in revenue is $120,000 - $105,000 = $15,000. However, since she is charging $1,000 less for the sixth motor home, we need to subtract that amount from the price effect: $15,000 - $1,000 = $14,000.

Therefore, the price effect of selling the sixth motor home is -$14,000. This means that selling the sixth motor home decreases Wendy's total revenue by $14,000 compared to selling only five motor homes at $21,000 each.

Wendy Has a Monopoly in the Retailing of Motor Homes