Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. $ \quad$$ \quad$$ \quad$$ \quad$ $\text { Cost Data }$ $ \quad$$ \quad$$ \quad$ $\text { Demand Data }$
$\begin{array}{|c|c|c|c}
\begin{array}{c}
\text { Total } \
\text { Output }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Cost }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { Demanded }
\end{array} & \text { Price } \
\hline 0 & \$ 25 & 0 & \$ 60 \
\hline 1 & 40 & 1 & 55 \
\hline 2 & 45 & 2 & 50 \
\hline 3 & 55 & 3 & 45 \
\hline 4 & 70 & 4 & 40 \
\hline 5 & 90 & 5 & 35 \
\hline 6 & 115 & 6 & 30 \
\hline
\end{array}$ If the firm sells 3 units of output, marginal revenue will be
A) -$5.
B) $35.
C) $135.
D) $165.

Question

Assume that the short-run cost and demand data given in the tables below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. $ \quad$$ \quad$$ \quad$$ \quad$   $\text { Cost Data }$    $ \quad$$ \quad$$ \quad$  $\text { Demand Data }$ 
$\begin{array}{|c|c|c|c}
\begin{array}{c}
\text { Total } \
\text { Output }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Cost }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { Demanded }
\end{array} & \text { Price } \
\hline 0 & \$ 25 & 0 & \$ 60 \
\hline 1 & 40 & 1 & 55 \
\hline 2 & 45 & 2 & 50 \
\hline 3 & 55 & 3 & 45 \
\hline 4 & 70 & 4 & 40 \
\hline 5 & 90 & 5 & 35 \
\hline 6 & 115 & 6 & 30 \
\hline
\end{array}$ If the firm sells 3 units of output, marginal revenue will be
A) -$5.
B) $35.
C) $135.
D) $165.

Quizplus · Accepted Answer

To find the marginal revenue (MR) of the third unit, we must first find the total revenue (TR) of the firm at a quantity of 3 units. From the demand data, we know that the price at a quantity of 3 units is $45. Thus, TR at Q=3 is:

TR = P x Q = $45 x 3 = $135.

To find MR, we must calculate the change in total revenue resulting from a one-unit increase in output. In other words, MR=ΔTR/ΔQ. The change in total revenue resulting from a one-unit increase in output from 3 units to 4 units is:

ΔTR = TR4 - TR3 = (P4 x Q4) - (P3 x Q3) = ($40 x 4) - ($45 x 3) = $160 - $135 = $25.

Therefore, MR at Q=3 is:

MR = ΔTR/ΔQ = $25 / (4 - 3) = $25.

Thus, the best choice is B, $35.

Assume That the Short-Run Cost and Demand Data Given in the Tables