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The start-up you work for is trying to grow revenue as quickly as possible in order to attract additional investment. Two executives are arguing over
The start-up you work for is trying to grow revenue as quickly as possible in order to attract additional investment. Two executives are arguing over how best to achieve this Delia. who manages production. says we need to ramp up output and sales because every additional unit sold is extra dollars in revenue. Domingo who manages marketing. is not convinced and thinks that too quick an expansion could force the company to cut prices to where revenue actually no longer increases with additional sales. Given your reputation as the cool head in the room. each turns to you for support. You explain that. in economics. there is a measure of changes in revenue called marglnal revenue. Since the company has estimated its demand to be 0 = 280 0.5P. you are able to calculate marginal revenue. and clarify that: -:':'2- Domingo ls right. additional sales can eventually decrease revenue; however. marginal revenue is still positive for this start-up when sales are 100. Domingo ls closer to the truth than Delia. although both have it wrong. Marginal revenue is always negative. since we have to charge less the more we sell. Say. we sell 100 units. then marginal revenue is negative 510. Delia is right. additional sales always increase revenue. since marginal revenue is always greater than zero. For instance. when sales are 100. our marginal revenue is $30. Although Delia is right that revenue always incrases with additional sales. the additional money earned gets smaller and smaller the more we produce. In this sense. Domingo is nearly correct. but not quite. Case in point. when sales are 100. our marginal revenue is only $2
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