Question

When total revenue is constant, what will be the effect on average revenue?

• A. Average revenue (AR) will fall
• B. Average revenue (AR) will increase
• C. Average revenue (AR) will also be constant
• D. No effect on average revenue (AR)

Hint:

When total revenue is constant, the average revenue will also remain constant since it is simply the total revenue divided by the quantity.

Answer 1

The Correct Option is C

Step 1: Understanding Average Revenue:
Average revenue (AR) is calculated by dividing total revenue (TR) by the quantity of goods sold (Q): \[ AR = \frac{TR}{Q} \] If total revenue is constant, then any changes in quantity will directly affect average revenue. However, since total revenue remains constant, average revenue will also remain constant.
Step 2: Analyzing the Options:
- Option (A) Average revenue (AR) will fall: This is incorrect. If total revenue is constant, AR cannot fall unless quantity decreases, which is not the case here.
- Option (B) Average revenue (AR) will increase: This is incorrect. AR will not increase because total revenue remains constant.
- Option (C) Average revenue (AR) will also be constant: This is the correct answer. Since total revenue is constant, the average revenue will also remain constant.
- Option (D) No effect on average revenue (AR): This is incorrect. If total revenue is constant, average revenue will definitely remain constant.
Step 3: Conclusion and Answer:
The correct answer is (C) because when total revenue remains constant, average revenue will also remain constant.