Question 19 of 25intermediate🔧 ApplyNumerical4 marks

Compute the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs 10.

Quantity SoldTRMRAR
0
1
2
3
4
5
6
Correct Answer
Quantity SoldTR (Rs)MR (Rs)AR (Rs)
00--
1101010
2201010
3301010
4401010
5501010
6601010
Exercise: EXERCISES | Q: 19 | (Page 16)
For More Understanding

Explanation

The solution is derived based on the definitions provided in the context. Total Revenue (TR) is calculated as the product of market price and quantity sold (TR=p×qTR = p \times q). Since the market price is fixed at Rs 10, TR increases by Rs 10 for each additional unit sold. Marginal Revenue (MR) is defined as the increase in total revenue for a unit increase in output. In this case, because the price is constant, the increase in TR is always Rs 10 for every unit sold. Average Revenue (AR) is defined as total revenue per unit of output (TR/qTR/q). Algebraically, since TR=p×qTR = p \times q, dividing by qq gives AR=pAR = p. Thus, AR remains constant at Rs 10. At quantity 0, MR and AR are undefined/not applicable as there is no output.

Solution Steps

  1. Step 1: Compute Total Revenue (TR) for each quantity using the formula TR=Price×QuantityTR = \text{Price} \times \text{Quantity}. Given Price (PP) = Rs 10, TR is calculated as 10×Q10 \times Q. For example, at Q=3Q=3, TR=10×3=30TR = 10 \times 3 = 30.

  2. Step 2: Compute Marginal Revenue (MR). MR is the change in TR from selling an additional unit. For the first unit, MR=TR(1)−TR(0)=10−0=10MR = TR(1) - TR(0) = 10 - 0 = 10. Since price is constant, MR remains Rs 10 for all subsequent units.

  3. Step 3: Compute Average Revenue (AR) using the formula AR=TR/QAR = TR / Q. For example, at Q=4Q=4, AR=40/4=10AR = 40 / 4 = 10. Since the price is fixed, AR equals the price (Rs 10) for all units where Q>0Q > 0.