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Basic Question 3 of 29
Company A is the only producer of widgets. At a price of $10, the quantity of widgets demanded is 200, while at a price of $8, the quantity demanded is 300. What is the marginal revenue Company A receives when production is at 200 widgets?
User Contributed Comments 21
| User | Comment |
|---|---|
| isida | shouldnt the asnwer be 4?? (2400-2000)/100 |
| kalps | yes, your formula is correct old boy the answer is $4 change in total revenue divided by change in quantity = marginal revenue |
| zglacier | the answer is correct ! because the formula MR = P -(Q * slope )is more precise !! |
| danlan | slope=(10-8)/(300-200)=0.02, Q=200, P=10 so MR=10-200*0.02=6 |
| msns | How can there be a marginal revenue in this case. We are actually selling more units at a lower price of $8. So aren't we actually incurring a loss. |
| bobert | Nope, just look at the math. 200 * 10 = 2000 300 * 8 = 2400 There is no loss, so just use the formula as stated above and you'll be good to go. Remember, a monopoly allows you to supply at a lower price, and have more sales which outweighs the extra you would earn if you sold at a higher price. |
| qazwsxedcrfvtgb | Revenue R = p(q) * q where p(q) is the price function of q. Marginal Revenue MR = dR/dq = p'(q)*q + p(q) Given: q = 200, p(q) = 10 And: p'(q) = (8-10)/(300-200)= -1/50 So: MR = -(1/50)*200 + 10 = 6 |
| nneks | Thanks qazwsxedcrfvtgb....i was now about to comment on the sloppy calculation of the slope above...posted by danlan. |
| Beret | Or: p = -0.02*q + 14 R = p*q = (-0.02*q + 14)*q MR = dR/dq = -0.04*q + 14 Fill in current point of q = 200 and find MR = 6 |
| desertfox27 | i really do not understand the logic of the formula. in the book, it only says MR = change in TR over change in quantity. Thus, the answer should be 4. |
| desertfox27 | thanks. i only got the explanation in the next question, MR = initial price - (initial quantity X slope). slope is change in price over change in quantity. please note it is in absolute value. |
| bundy | Change in Rise/ Change in Run X Price = MR |
| southeuro | tend to agree with isida. shouldn't MR be change in revenue over change in quantity therefore 400/100 = 4? |
| Sam123456 | Thanks Left Handed Typing Rule. That clears it up. |
| dmfz | i agree with desertfox |
| Shaan23 | You can use the Change in TR/ Change in Q if it's a perfectly competitive market(Perfectly elastic Demand). Here the demand function is downward sloping. You have to use the other method stated above in the comments |
| schweitzdm | How do you decide to use P=10 instead of P=8? |
| robbiecow | alternative calc to use is MR = P x (1 - 1/|elasticity|) 1. inelastic demand (D<1), selling more will decrease TR 2. elastic demand (D>1), selling more will increase TR |
| Yrazzaq88 | First of all: Step 1: Calculate the slope: Take ($8-$10) / (300-200) = -2/100 = -0.02 << Remember, that the slope is in negative format. Step 2: Now that we have the slope of -0.02, we will do the following to get MR= -0.02 x 200 (our quantity) + 10 (our price) = 6 |
| praj24 | Thanks Yrazzaq! |
| Freddie33 | Yrazzaq, based on the formula given in the answer, then with a negative slope you would get a MR of $14. It is when slope = 0.02 (positive) that results in MR = $6 (correct answer) |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
determine and interpret break even and shutdown points of production, as well as how economies and diseconomies of scale affect costs under perfect and imperfect competition
CFA® 2024 Level I Curriculum, Volume 1, Module 1.