Consider a firm that operates in a perfectly competitive market. Currently the firm is producing 50 units of output and at that output level, marginal revenue is $6. Suppose that the firm increases output by 50%. Total revenue will be
A)$300.
B)$450.
C)$600.
D)the same since price will fall by 50%.

Question

Consider a firm that operates in a perfectly competitive market. Currently the firm is producing 50 units of output and at that output level, marginal revenue is $6. Suppose that the firm increases output by 50%. Total revenue will be
A)​$300.
B)​$450.
C)​$600.
D)​the same since price will fall by 50%.

Quizplus · Accepted Answer

In a perfectly competitive market, the price is equal to the marginal revenue. Therefore, if the marginal revenue is $6, the price is also $6. If the firm increases output by 50%, the new output will be 75 units (50 units x 1.5). Since the price remains constant, the total revenue will increase by 50% as well. Thus, the total revenue will be $450 (75 units x $6).

Consider a Firm That Operates in a Perfectly Competitive Market