Refer to Table 14-4. If the market price is \$10 per unit, what is the average revenue when 4 units are sold?

• A. 4
• B. 2.5
• C. 10
• D. 40

Answer: (C)

Verified step by step guidance

1. Understand that average revenue (AR) is defined as total revenue (TR) divided by the quantity (Q) sold. Mathematically, this is expressed as \(\text{AR} = \frac{\text{TR}}{Q}\).
2. Recognize that total revenue (TR) is calculated by multiplying the market price (P) by the quantity sold (Q). So, \(\text{TR} = P \times Q\).
3. Given the market price \(P = 10\) and quantity sold \(Q = 4\), substitute these values into the total revenue formula to find \(\text{TR} = 10 \times 4\).
4. Next, use the total revenue value and quantity to calculate average revenue using \(\text{AR} = \frac{\text{TR}}{Q}\).
5. Interpret the result: since average revenue equals total revenue divided by quantity, and total revenue is price times quantity, average revenue at any quantity in a perfectly competitive market equals the market price.