Answered: Use the following demand schedule for a…

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter8: Monopoly

Section: Chapter Questions

Problem 6SQP

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Question

Use the following demand schedule for a monopolist to calculate total revenue and marginal revenue. for each price, indicate whether demand is elastic, unit elastic, or inelastic. Using the data from the demand schedule, graph the demand curve, the marginal revenue curve and the total revenue curve. identify the elastic, unit elastic and ineleastic segments along the demand curve.

PRICE	QTY DEMANDED	TOTAL REVENUE	TR Calc	MARGINAL REVENUE	MR Calc
8.00	0			-----	-----
6.50	1
4.00	2

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Step 1

Answer:

Formulas to be used:

$T o t a l r e v e n u e = P r i c e \times Q u a n t i t y M a r g i n a l r e v e n u e = T R_{n} - T R_{n - 1} W h e r e T R_{n} = t o t a l r e v e n u e a t c u r r e n t l e v e l o f q u a n t i t y T R_{n - 1} = t o t a l r e v e n u e a t p r e v i o u s l e v e l o f q u a n t i t y$

Price	Quantity demanded	Total revenue	TR calculation	Marginal revenue	MR calculation
8.00	0	0	$8 \times 0 = 0$	-
6.50	1	6.50	$6.50 \times 1 = 6.50$	6.50	$6.50 - 0 = 6.50$
4.00	2	8.00	$4 \times 2 = 8$	1.50	$8.00 - 6.50 = 1.50$

Relationship between MR and elasticity.

When the MR is increasing the demand is elastic (elasticity>1). When the MR is maximum the demand is unit elastic (elasticity =1) and when the MR falls the demand is inelastic (elasticity<1)

At P=8 the MR is not at maximum. And the price before the MR becomes maximum shows elastic demand (elasticity>1)

At P=6.50 the MR is maximum so the demand will be unit elastic and the elasticity will be one (elasticity=1).

At P=4 the MR is falling so the demand will be inelastic and the elasticity will be less than one (elasticity<1)

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