Multiple Choice
The demand for a luxury good whose purchase would exhaust a large portion of one's income is best described as:
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
In the context of consumer surplus and willingness to pay, the amount of revenue produced per unit of output sold is known as:
A
Consumer surplus
B
Average revenue
C
Marginal cost
D
Total revenue
Verified step by step guidance1
Understand the key terms involved: 'Consumer surplus' refers to the difference between what consumers are willing to pay and what they actually pay; 'Marginal cost' is the cost of producing one additional unit; 'Total revenue' is the total income from sales; and 'Average revenue' is the revenue earned per unit sold.
Recall that 'Average revenue' is calculated by dividing total revenue by the quantity of output sold, which gives the revenue per unit.
Express the formula for average revenue as: \(\text{Average Revenue} = \frac{\text{Total Revenue}}{\text{Quantity Sold}}\).
Recognize that in most market structures, average revenue equals the price per unit, which is the amount of revenue produced per unit of output sold.
Conclude that the term describing the amount of revenue produced per unit of output sold is 'Average revenue'.
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