Answer to Question #201922 in Microeconomics for Rida Awwal

Question

Assume that the total revenue of 3 units of a commodity is Birr 24, and

the marginal revenue of the 4th unit is Birr 4. Calculate the average

revenue of 4 units

Answer 1

Solution:

Average Revenue (AR) = $\frac{TR}{Q}$

Marginal Revenue (MR) = $\frac{\triangle TR}{\triangle Q} or \;TR_{n}-TR _{n-1}$

TR of 3 units = 24

MR of the 4^th unit = 4

Derive the Total Revenue (TR) of the 4^th unit:

MR of the 4^th unit = $TR_{n}-TR _{n-1}$

n = 4

n – 1 = 4 – 1 = 3

MR of the 4^th unit = TR₄ – TR₃

TR₃ = 24

4 = TR₄ – 24

TR₄ = 4 + 24 = 28

Total Revenue of the 4^th unit = 28

Therefore,

Average Revenue of the 4 units = $\frac{TR \;of\;4\; units}{4\; units}$

AR of the 4 units = $\frac{28}{4} = 7$

Average Revenue of 4 units = Birr 7