Scenario: When a monopolist charges $5 for its product, it sells 250 units of the product. When it decreases the price of the product to $4, it sells 325 units of the product.
-Refer to the scenario above.What is the change in total revenue due to the price reduction?
A) Total revenue increases by $25.
B) Total revenue increases by $50.
C) Total revenue decreases by $105.
D) Total revenue decreases by $175.

Question

Quizplus · Accepted Answer

To calculate the change in total revenue, we need to calculate the revenue at each price point and then subtract the revenue at $4 from the revenue at $5.

At $5, the monopolist sells 250 units, so their total revenue is:
Total revenue at $5 = Price x Quantity = $5 x 250 = $1250

At $4, the monopolist sells 325 units, so their total revenue is:
Total revenue at $4 = Price x Quantity = $4 x 325 = $1300

Therefore, the change in total revenue is:
Change in total revenue = Total revenue at $4 - Total revenue at $5 = $1300 - $1250 = $50

So the correct answer is B. Total revenue increases by $50.

Scenario: When a Monopolist Charges $5 for Its Product, It