Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be
A)$2,000.
B)$2,400.
C)$4,200.
D)We do not have enough information to answer the question.

Question

Quizplus · Accepted Answer

To find the total revenue at 200 units of output, we need to know the price of the firm's product. However, we can use the information provided to calculate the firm's marginal revenue (MR), which is the additional revenue earned by producing one more unit of output.

We know that the firm's total revenue increased by $1,800 when it increased output from 150 units to 200 units. Therefore, the firm's marginal revenue from producing the 51st through 200th units of output is:

Marginal revenue = (Total revenue with 200 units - Total revenue with 150 units) / (200 - 150)
                  = $1,800 / 50
                  = $36

Assuming the firm is maximizing profit, it will continue to produce output as long as marginal revenue exceeds marginal cost. If the firm's marginal cost is less than $36 for the 200th unit, it will produce this unit and earn additional revenue. Since we do not have information about the firm's marginal cost, we cannot determine its total revenue at 200 units of output.

However, if we assume that the firm's marginal cost is constant at $20 per unit (for simplicity), we can calculate that its total revenue at 200 units of output would be:

Total revenue = (Price per unit) x (Number of units)
                         = [(Total revenue with 200 units - Total revenue with 150 units) / 50 + $20] x 200
                         = ($36 + $20) x 200
                         = $12,400

Therefore, the best choice is B, $2,400, since this is the only option that is greater than the initial total revenue of $1,800 and represents a plausible increase in revenue assuming constant marginal cost.

Suppose a Firm in a Competitive Market Produces and Sells