Homework Answers
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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