The table below shows the total revenue schedule of a farmer who produces maizze. Use the informatiom in the table to answer the qeston that follows; Output...
Question 1 Report
The table below shows the total revenue schedule of a farmer who produces maizze. Use the informatiom in the table to answer the qeston that follows;
| Output (in bags) | Total Revenue ($) |
| 0 | 0 |
| 1 | 6 |
| 2 | 12 |
| 3 | 18 |
| 4 | 24 |
| 5 | 30 |
| 6 | 36 |
(a) At each level of output, calculate the farmer's marginal revenue (MR).
(b) What is the price of a bag of maize? Explain your answer.
(c) In what market structure is the farmer operating? Give a reason for your answer.
Answer Details
(a) Marginal revenue \( MR = \dfrac{\Delta TR}{\Delta Q} \), the change in total revenue when output rises by one bag.
| Output (bags) | Total Revenue ($) | MR ($) |
|---|---|---|
| 0 | 0 | - |
| 1 | 6 | \(6-0=6\) |
| 2 | 12 | \(12-6=6\) |
| 3 | 18 | \(18-12=6\) |
| 4 | 24 | \(24-18=6\) |
| 5 | 30 | \(30-24=6\) |
| 6 | 36 | \(36-30=6\) |
Marginal revenue is constant at \$6 per bag.
(b) The price of a bag of maize is \$6. Average revenue \( = \dfrac{TR}{Q} = \dfrac{6}{1} = \dfrac{12}{2} = \$6 \) at every level, and price equals average revenue. Because MR equals AR equals price, the firm sells every bag at the same fixed price of \$6.
(c) The farmer operates under perfect competition. The price is constant regardless of the quantity sold (MR = AR = price), so the farmer is a price taker who cannot influence the market price.
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