Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 12, Problem 3RQ
To determine
Marginal revenue, total revenue, elasticity of demand .
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Use the demand schedule to the upper right to calculate total revenue and marginal revenue at each quantity. Plot the demand, total-revenue, and marginal revenue curves and explain the relationships between them. Explain why the marginal revenue of the fourth unit of output is $3.50, even though its price is $5. Use Chapter 6’s total-revenue test for price elasticity to designate the elastic and inelastic segments of your graphed demand curve. What generalization can you make as to the relationship between marginal revenue and elasticity of demand? Suppose the marginal cost of successive units of output was zero. What output would the profit-seeking fifirm produce? Finally, use your analysis to explain why a monopolist would never produce in the inelastic region of demand.
Define the following terms: total revenue, marginal revenue, demand curve, price elasticity, and cross-elasticity.
Now assume that firm T faces a downward-sloping (straight-line) demand
Fill in the columns for TR and MR in the table (Note that the figures for MR are entered between 0 and 1, 1 and 2, 2 and 3, etc.)
The demand curve for the product of firm T
Price (AR) (£)
Quantity (Units)
Total Revenue (TR) (£)
Marginal Revenue (MR) (£)
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7
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(b) What is the price elasticity of demand at P = £10?....................................................................
(c) Over what price range is demand price elastic?.........................................................................
(d) Over what price range is demand price inelastic? ....................................................................................
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- In 2006, the five leading suppliers of digital cameras in the United States were Canon, Sony, Kodak, Olympus, and Samsung. The combined market share of these five firms was 60.9 percent. The leading firm was Canon, with a market share of 18.7 percent. The own price elasticity for Canon’s cameras was –4.0 and the market elasticity of demand was –1.6. Suppose that in 2006, the average retail price of a Canon digital camera was $240 and that Canon’s marginal cost was $180 per camera. Suppose you were the CEO of Kodak, what would you do to avoid its business failure?arrow_forwardSilk wood Enterprise specializes in gardening supplies.The demand for it new brand of fertilizer fertilizer,Meadows Muffins, is given by the equation Q=120-4p. a. Silk wood is currently charging $10 for a pound of Meadows Muffins.At this price , what is the price elasticity of demand for Meadow Muffins? b. At a price of 10$ ,what is silk wood marginal revenue? c. What price should silk wood should charge if it wishes to maximize its total revenue? d. At the total revenue maximizing price, what is the price elasticity of demand for Meadows Muffins?arrow_forwardComplete the following table and identify the profit-maximizing output. What is true about marginal revenue and marginal costs when profit is maximized?What would be the profit-maximizing level of output if price fell to $9?arrow_forward
- Discuss the importance of price elasticity of demand, income elasticity of demand and cross price elasticity of demand to a sales manager selling soft drinks like Coca Cola If a firm faces the Marginal Cost schedule MC = 180 + 0.3Q2 and the MR schedule is MR = 540 = 0.6Q2 and that Total Fixed costs are $65. What is the maximum profit it can make? Assume that the second-order condition for maximum is metarrow_forwardTwo shoe stores located in the same shopping center have big sales: 20% off on everything in the store. After the sale, Store 1 finds that its total revenue has decreased by 10%, while Store 2 finds that total revenue has increased by 30%. What are the differences in elasticities for the 2 firms? Explain your reasoning.arrow_forwardGive typing answer with explanation and conclusion Given the revenue function R = 125Q - 2.5Q2, what is marginal revenue at Q = 23? A. 0 B. 0.8 C. 5 D. 10arrow_forward
- Derive and graph demand curve, marginal revenue, total revenue and price elasticity when given a linear demand functionarrow_forwardDescribe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm? Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?arrow_forwardUse the following demand schedule to determine total and marginal revenue for each possible level of sales: Product price: 2, 2, 2, 2, 2, 2 Quantity demanded: 0, 1, 2, 3, 4, 5 Total revenue: 0, 2, 4, 6, 8, 10 MR: -, 2, 2, 2, 2, 2arrow_forward
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