A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue?
A)The firm increases its output above 500 doorknobs.
B)The firm decreases its output below 500 doorknobs.
C)The market price of doorknobs rises above $10.
D)The market price of doorknobs falls below $10.

Question

Quizplus · Accepted Answer

If the market price of doorknobs falls below $10, the firm's average revenue will decrease. This is because the firm will have to lower its price in order to remain competitive, meaning they will receive less revenue per doorknob sold. The other options, increasing or decreasing output, or the market price rising above $10, would not necessarily impact the firm's average revenue.

A Firm in a Competitive Market Currently Produces and Sells