This economics question tests your understanding of economic models and analysis. The step-by-step answer below applies the relevant framework and explains the reasoning.
ScanSolve AI Answer
The statement describes a scenario in economics, specifically related to revenue concepts when a firm faces a downward-sloping demand curve. Step 1: Calculate Marginal Revenue (MR). Marginal Revenue (MR) is the change in total revenue from selling one additional unit. Given: When quantity (Q) increases from 1 to 2, Total Revenue (TR) increases from 10 to 18. MR = TR_2 - TR_1 = 18 - 10 = 8 The calculation for MR is correct. Step 2: Calculate Average Revenue (AR) and Price. Average Revenue (AR) is total revenue divided by quantity (AR = TRQ). In a single-price market, AR is equal to the price (P). For Q_1 = 1: AR_1 = TR_1Q_1 = (10)/(1) = 10 Price_1 = 10 For Q_2 = 2: AR_2 = TR_2Q_2 = (18)/(2) = 9 Price_2 = 9 Step 3: Analyze the relationships. As quantity (Q) increases from 1 to 2: • Price falls from 10 to 9. • Average Revenue (AR) falls from 10 to 9. • Marginal Revenue (MR) for the second unit is 8. Notice that MR (8) is less than AR (9) for the second unit. This is consistent with AR falling. When AR is falling, MR is always below AR and also falls. The statement "Notice that Q is increase price - AR is falls and MR falls" accurately describes this economic principle. When a firm must lower its price to sell more units (as in imperfect competition), both the average revenue (price) and marginal revenue will fall, with marginal revenue falling faster than average revenue. The statement and its calculations are correct. Send me the next one 📸