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The average revenue has the same value at Q = 150 and Q = 151.
Further explanation:
Average fixed cost: The fixed cost per unit is termed as the average fixed cost. The fixed cost does not change with the level of output. However, the average fixed cost changes along with the level of output.
Total revenue: The total revenue refers to the amount of revenue generated during a particular period of time. The total revenue is the total of the revenues.
Total cost: The total cost is the sum total of the variable and fixed cost during the year. The total cost represents all the direct, and indirect costs occurred on a product.
Average total cost: The total cost per unit is also termed as the average total cost. The average total cost represents the cost, which is computed by dividing the total cost with the number of units manufactured during the year.
Calculate the total revenue when the quantity of output is 150 units:
It is given that the output is sold at $40 per unit.
Therefore, the total revenue when the quantity of output is 150 units is <u>$6,000.</u>
Calculate the average revenue when the quantity of output is 150 units:
Therefore, the average revenue when the quantity of output is 150 units is <u>$40.</u>
Calculate the total revenue when the quantity of output is 151 units:
It is given that the output is sold at $40 per unit.
Therefore, the total revenue when the quantity of output is 151 units is <u>$6,040.</u>
Calculate the average revenue when the quantity of output is 151 units:
Therefore, the average revenue when the quantity of output is 151 units is <u>$40.</u>
Justification for correct and incorrect answer:
a.
Average fixed cost: The average fixed cost changes along with the change in output level. The average fixed cost is different from that of fixed cost. Hence, this choice is incorrect.
b.
Average revenue: The average revenue is $40 at Q = 150 units and Q = 151 units. The average revenue is equal at both the levels of the output. Hence, this choice is correct.
c.
Total cost: The total cost is not the same at both the levels of the output. The total cost is different for Q = 150 units, and Q = 151 units as the average total cost is also different for both output levels. The total cost increases when the output level changes. Hence, this option is incorrect.
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Answer details
Grade: Senior School
Subject: Cost Accounting
Chapter: Cost Behavior
Keywords: Scenario 14-4, the information below applies to, competitive firm, scenario 14-4 the information below applies to competitive firm, when the firm produces, which of the following magnitudes, average fixed cost, average revenue, average cost per unit, average total cost, at Q = 150 and Q = 151, represent the quantity of output, refer to scenario 14-4, when the firm produces and sells 150 units of output.