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This question: 1 4 3 of 10 (1 completej > This Quiz: 10 Refer to the table to the right. What portion of the marginal revenue
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Answer #1

As we know Marginal Revenue can be broken into price effect and output (or quantity) effect :-

  • Price Effect = Change in Price × Previous Quantity
  • Output Effect = Change in Quantity × New Price

As we can see for Marginal Revenue at 4th unit :-

Price Change = $6 - $6.5 = -$0.5

Quantity change = 4 - 3 = 1

Previous Quantity = 3

New price = $6

Using above information :-

  • Price Effect = -$0.5 * 3 = -$1.50
  • Output Effect = 1 * $6 = $6

​​​​​​​So, Option C. Output Effect = $6.00 ; Price Effect = -$1.50 ​​​​​​​is correct

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