Question
Profit equals revenue minus cost. Let us assume that firm S is a price taker. (a)...
Profit equals revenue minus cost. Let us assume that firm S is a price taker.
(a) In other words it faces a (i) horizontal (ii) demand curve
Let us assume that it faces a market price of £2 per unit for its product.
(b) What is its total revenue from selling:
(i) 5 units? 10
(ii) 8 units? 16
(c) What shape is its total revenue curve?
(d) What will be its marginal revenue from selling:
(i) the fifth unit?
(ii) the eighth unit?
(e) What shape is its marginal revenue curve?
Homework Answers
Answer #1
Qa) Firm S is a price taker => Firm S has a horizontal demand
curve
Qb) Total Revenue Curve for Firm S is an upward sloping straight
line with slope = Market Price = 2;
the slope gives the rate with which TR increases with sales
i.e. increment in revenue for each unit sold
--> which is nothing but the market price
Qc) If the firm is a price taker, marginal revenue (increment in
revenue for additional sale) is constant and is the same as the
market price
Qd) Marginal Revenue is constant for all units sold, so MR curve is
horizontal
-----
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