Question

Selma produces t-shirts. From the consumers' perspective, her t-shirts are not different from t-shirts offered by other sellers. Selma sells her t-shirts at the going market price of $8 per t-shirt. Her total variable cost is $25 when she produces four t-shirts and $32 when she produces five t-shirts. Her total fixed cost is $20. What is Selma's marginal revenue from selling the fifth t-shirt? Question 36 options: $8 $10.40 $12 $7 ..

Answer 1

Selma's marginal revenue from fifth t shirt is-

Answer-. $8.

Selma's t shirts are not different from t shirt offered by other sellers. It means she operates in a perfectly competitive market. She sells her t shirt at the going market price. Since price is not required to be reduced to sell additional outputs, the marginal revenue earned from the sale of an additional unit of output is same as that of price. Hence marginal revenue of all units will be $8. So marginal revenue of 5th t shirt is $8. We can also calculate it with the help of total revenue.

When output= 4 t shirt , price= $8

So , Total revenue= price x quantity

Total revenue= $8 x 4

Total revenue of 4 t shirt= $32

When output= 5 t shirt, price=$8

So, Total revenue= price x quantity

Total revenue= $8 x 5

Total revenue of 5 t shirt = $40.

Marginal revenue of 5th t shirt= total revenue of 5th t shirt - total revenue of 4th t shirt.

Marginal revenue= $40 - $32

Marginal revenue of 5th t shirt= $8.

Hence, marginal revenue of 5th t shirt is $8.