Calculate Marginal Revenue when output rises from 100 to 250 pounds. Total Output (Q) (Pounds) (1) Price per Pound ($2.00) (2) Total Revenue (3) Marginal Revenue (4) 0 $2.00 $0.00 – 100 $2.00 $200.00 250 $2.00 $500.00 320 $2.00 $640.00 380 $2.00 $760.00 420 $2.00 $840.00 430 $2.00 $860.00 390 $2.00 $780.00
The Correct Answer and Explanation is:
To calculate the Marginal Revenue (MR) when output rises from 100 pounds to 250 pounds, we first need to determine the Total Revenue (TR) at both output levels. The formula for Total Revenue is:
[
\text{Total Revenue (TR)} = \text{Price per Pound} \times \text{Total Output (Q)}
]
Given Data:
- Price per Pound: $2.00
- Total Output (Q):
- At 100 pounds:
[
TR_{100} = 2.00 \times 100 = 200.00
] - At 250 pounds:
[
TR_{250} = 2.00 \times 250 = 500.00
]
Marginal Revenue Calculation:
Marginal Revenue (MR) is defined as the change in Total Revenue (TR) resulting from the sale of one additional unit of output. It can be calculated using the formula:
[
MR = \frac{\Delta TR}{\Delta Q}
]
Where:
- (\Delta TR = TR_{250} – TR_{100} = 500.00 – 200.00 = 300.00)
- (\Delta Q = 250 – 100 = 150)
Now, substituting these values into the MR formula:
[
MR = \frac{300.00}{150} = 2.00
]
Conclusion:
The Marginal Revenue when output rises from 100 pounds to 250 pounds is $2.00.
Explanation:
Marginal Revenue is an important concept in economics and business as it measures the additional revenue generated from selling one more unit of a product. In this case, when output increased from 100 to 250 pounds, the Total Revenue increased by $300. Given that this increase in output corresponds to 150 additional pounds sold, the MR of $2.00 means that for each additional pound sold beyond 100 pounds, the firm earns an extra $2.00 in revenue.
This constant price per pound indicates that the market is likely competitive, as the price does not change with the increase in quantity sold. In a perfectly competitive market, MR equals the price, which supports the calculated value of MR being equal to the price of $2.00 per pound.
Understanding MR helps businesses make informed production decisions; if MR exceeds marginal cost (MC), it may be beneficial to increase production to maximize profit. Conversely, if MR falls below MC, it may indicate a need to decrease production. This analysis of MR is crucial for firms aiming to optimize their revenue strategies while managing costs effectively.