Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal cost decreases leading to increased total revenue
B
Marginal cost remains constant regardless of price change
C
Marginal cost increases resulting in reduced total revenue
D
Marginal cost is irrelevant to total revenue changes
Understanding the Answer
Let's break down why this is correct
Answer
In this scenario, the company is experiencing a situation where lowering the price of their new product leads to a significant increase in total revenue. This suggests that the demand for the product is elastic, meaning that customers are willing to buy much more when the price is lower. When the price decreases, the additional revenue gained from selling more units is greater than the loss from the lower price per unit. Therefore, the relationship between marginal costs and total revenue can be described as favorable, where the marginal revenue from selling an additional unit exceeds the marginal cost of producing that unit. For example, if the cost to produce one more item is $10, but selling it at a lower price results in earning $15 in revenue, the company benefits by $5 for each additional unit sold.
Detailed Explanation
When the company lowers the price, more people buy the product. Other options are incorrect because Some might think that costs don't change when prices drop; This option suggests that costs go up and sales go down.
Key Concepts
Marginal Costs
Total Revenue
Pricing Strategy
Topic
Marginal Costs and Total Revenue
Difficulty
medium level question
Cognitive Level
understand
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