Marginal revenue, total revenue, elasticity of demand.

Question

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.

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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.

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) (£) 20 18 16 14 12 10 8 6 0 1 2 3 4 5 6 7 ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… ……… (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? ....................................................................................

29. Refer to Figure 15-5 (attached). At the profit-maximizing level of output, marginal revenue is equal to P3. marginal cost is equal to P3. average revenue is equal to P2. average total cost is equal to P6.