Question

If the total revenue of 7 units of a commodity is Birr 40 and the average

revenue of 8 units is Birr 5, what is the marginal revenue of the 8th

unit?

Answer 1

Solution:

Total Revenue = P $\times$ Q

Total revenue of 7 units (TR₁) = 40

 

Average revenue = $\frac{TR}{ Q}$

Average revenue of 8 units = 5

5 = $\frac{TR}{ 8}$

 

Total revenue of 8 units (TR₂) = 8 $\times$ 5 = 40

 

Marginal revenue = $\frac{\triangle TR}{\triangle Q}$

MR_n = TR_n – TR_n-1

Marginal revenue = TR₁ – TR₂

Marginal revenue = 40 – 40 = 0

Marginal revenue = 0