Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
• When the firm produces and sells 150 units of output, its average total cost is $24.50.
• When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. How does the firm's marginal revenue (MR) compare to its marginal cost (MC) when it increases its output from 150 units to 151 units?
A)MR exceeds MC by $7.95.
B)MR exceeds MC by $11.05.
C)MC exceeds MR by $11.05.
D)MC exceeds MR by $13.50.

Question

Quizplus · Accepted Answer

The marginal revenue (MR) is $40 (since the firm is competitive and sells each unit for $40). The marginal cost (MC) can be calculated as the change in total cost when output increases from 150 to 151 units. The total cost at 150 units is 150 * $24.50 = $3,675, and at 151 units, it is 151 * $24.55 = $3,707.05. The MC is $3,707.05 - $3,675 = $32.05. Therefore, MR ($40) exceeds MC ($32.05) by $7.95.

Scenario 14-4 The Information Below Applies to a Competitive Firm That Sells