Question

Mimi is granted a license to sell her unique Spirit Pins at local high school lacrosse...

Mimi is granted a license to sell her unique Spirit Pins at local high school lacrosse games. When Mimi prices her pins at $10, she sells 20 pins per game. When she lowers her price to $8, she sells 40 pins.

The additional money she earns from dropping her price is known as the __________.

  • Output effect

  • Price effect

  • Marginal revenue

  • Opportunity cost

Business   Economics   
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Answer #1

Ans: The additional money she earns from dropping her price is known as the marginal revenue.

Explanation:

Marginal revenue refers to the addition made to the total revenue in the subsequent sale of the product.

When Mimi prices her pins at $10, she sells 20 pins per game;

Total revenue = Price * Quantity = $10 * 20 = $200

When she lowers her price to $8, she sells 40 pins;

Total revenue = Price * Quantity = $8 * 40 = $320

Marginal Revenue = Change in total revenue / Change in quantity

= ( $320 -$200) / ( 40  - 20 )

= $120 / 20

= $6

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