To find the relationship between marginal revenue and price elasticity when the tolls rises on the route.

Question

Want to see the full answer?

Answer 1

Question

Chapter 8.3, Problem 1.1MQ

To determine

To find the relationship between marginal revenue and price elasticity when the tolls rises on the route.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

What is the total revenue, marginal revenue and own price elasticity of each row of the table?

YOU SELL TWO DIFFERENT GOODS PRINTERS AND CARTRIDGES. THE PRICE ELASTICITY OF DEMAND FOR THE PRINTERS IS -3.4 AND YOU EARN A REVENUE OF RM 15000 PER MONTH FROM THE GOOD. YOU EARN A REVENUE OF RM 5000 PER MONTH FROM TONER CARTRIDGES. THE CROSS PRICE ELASTICITY OF DEMAND FO BOTH OF THE GOODS IS -2.5. IF YOU DECIDE TO DECREASE THE PRICE BY 5%, CALCULATE YOUR NEW TOTAL REVENUE FOR BOTH GOODS.

Elasticity in the real world—sort of. The managers of a scholarly journal that I edit were thinking of raising the subscription prices. We used to charge individuals $32 for four issues per year and libraries $52 for the same. The managers proposed raising the prices to $45 and $75, respectively. My feeling was that these increases were too small, especially since the prices of substitutes (scholarly journals of a quality similar to ours) were much higher. I suggested that we charge $50 and $85, respectively. I believed that was more sensible, since the demand is quite inelastic over this price range, so with a larger price increase our total revenue would rise further. Apparently the managers agreed, and we raised our prices by the larger amount. Next year our revenue rose, suggesting that my guess about the elasticity of demand was correct. Why do you think the journal charges different prices to libraries? Do individuals have a higher or lower elasticity of demand than libraries?…