Question

The information below applies to a competitive firm that sells its output for $40 per unit.

• When the firm produces and sells 150 units of output, its average total cost is $24.50.
• When the firm produces and sells 151 units of output, its average total cost is $24.55.

How does the firm's marginal revenue (MR) compare to its marginal cost (MC) when it increases its output from 150 units to 151 units?
a. MR exceeds MC by $7.95.
b. MR exceeds MC by $11.05.
c. MC exceeds MR by $11.05.
d. MC exceeds MR by $13.50.

Answer 1

A

Step-by-step explanation:

Marginal cost is the change in total cost when output is increased by 1 unit

total cost = average cost x quantity

Marginal cost = (151 x 24.55) - (150 x 24.50) = 32.05

marginal