Question

You are given that the equilibrium price and quantity of a product A are $30 and 2kg respectively. What is the marginal revenue when the price elasticity of demand is -3?

What is the marginal revenue when quantity is 4?

Answer 1

Solution:

$$MR=p\times (1+ \frac {1}{E_d})$$

$$MR=30(1-\frac {1}{3})$$

$$MR=20$$

$$E_d=Q_d^{/}\times \frac {p}{Q}$$

$$-3= Q_d^{/}\times \frac {30}{2}$$

$$Q_d^{/}=-0.2$$

If q=4

$$-3=-0.2 \times \frac{p}{4}$$

$$p=60$$

$$MR=60(1-\frac {1}{3})$$

$$MR=40$$