Question

Price is \(\$ 20\) per unit no matter how many units a firm sells. What is the marginal revenue for the 50th unit? Explain your answer.

Short answer

The marginal revenue for the 50th unit is \$20.

Step-by-step solution

Understand the Concept of Marginal Revenue

Marginal revenue is the added revenue a firm earns by selling one additional unit of a good or service. In this case, since the price is constant, the marginal revenue remains the same no matter how many units are sold.

Apply the Concept to the Given Problem

Under these circumstances, the marginal revenue for each unit sold will be equal to the given price per unit, which is \$20.

Identify the Marginal Revenue for the 50th Unit

Even for the 50th unit, the marginal revenue remains the same as for any other unit given the price does not change. Therefore, the marginal revenue for the 50th unit is also \$20.

Key concepts

Price per Unit

When discussing economic terms, the concept of 'price per unit' refers to the cost for one piece or single measure of a product or service. This measures the amount of money needed to purchase one unit of goods, like a carton of milk or a single service, such as an hour of consultancy.

In our exercise, the price per unit is fixed at \(20, which means regardless of the quantity sold, each unit will cost the customer exactly \)20. This is a characteristic often seen in perfectly competitive markets, where numerous suppliers offer identical products and no single participant has the power to influence the market price.

It's crucial for students to understand that a uniform price per unit simplifies the process of calculating revenue and marginal revenue, as prices aren't affected by the quantity sold. Moreover, grasping this concept aids in predicting the financial implications of sales strategy or market changes.

Revenue in Economics

Revenue is a core concept in economics that represents the total income generated by a firm through the sale of goods and services before any costs or expenses are deducted. To put it simply, it's the amount of money a company receives from its normal business operations.

To calculate total revenue, you multiply the price per unit by the number of units sold. Understanding revenue is vital because it's the starting point from which businesses deduct expenses to determine their profit. High revenue does not necessarily mean high profit, especially if the costs are substantial.

In the context of our textbook exercise, total revenue would increase linearly with each additional unit sold, as long as the price per unit remains fixed. This scenario makes it straightforward to forecast earnings and to consider the profitability of selling additional units.

Selling Additional Units

The term 'selling additional units' focuses on the increase in the quantity of goods or services sold by a business. This concept is closely tied to marginal revenue, which is the additional income received from selling one more unit. In a normal market scenario, selling more may affect the price, leading to a nuanced calculation of marginal revenue.

However, in our exercise where the price is constant at \(20 per unit, the marginal revenue does not change with the number of units sold. So, whether a company sells its 1st or 50th unit, the extra revenue remains consistently at \)20 for each unit sold. Students should recognize the implications of this economic phenomenon; it simplifies decision-making about increasing production because the financial benefit of each additional sale is predictable.