Question

A monopolist can sell 300 units of output for $45 per unit. Alternatively, it can sell 301 units of output for $44.60 per unit. The marginal revenue of the 301st unit of output is a. -$120.00. b. -$75.40. c. -$0.40. d. $75.40.

Answer 1

The marginal revenue of the 301st unit is calculated by the change in total revenue from selling one additional unit and is found to be -$78.40. This negative marginal revenue indicates that the additional unit decreases total revenue.

Step-by-step explanation:

The concept in question is the calculation of marginal revenue for a monopolist. Marginal revenue is the additional revenue that a firm gains from selling an additional unit of a good or service. In this case, the monopolist can sell the 300th unit for $45, bringing in a revenue of $13,500 (300 units × $45/unit). If the monopolist sells one more unit, the price falls to $44.60 for all units, so the total revenue for 301 units is $13,421.60 (301 units × $44.60/unit).

To find the marginal revenue of the 301st unit, we subtract the total revenue from selling 300 units from the total revenue from selling 301 units, which is $13,421.60 - $13,500 = -$78.40. Therefore, the marginal revenue of the 301st unit is -$78.40, indicating that selling the additional unit actually decreases the total revenue by $78.40.

Answer 2

b. -$75.40.

Step-by-step explanation:

Given;

Sale of 300 units of output for $45 per unit.

Sale of 301 units of output for $44.60

Difference in revenue earnings = 301 × 44.60 - 300 × 45

= 13424.6 - 13500

= -75.40

The sale of 301 units and 300 units at $44.60 and $45 respectively results in a marginal revenue of $75.40 (drop).

b is the right option.