Answer to Question #219920 in Economics for Ishaq

Question

b) Given that P is the unit price of a good, is the price elasticity of demand, and MR is the marginal revenue. Show that the relationship that connects MR, P, and is:

Answer 1

Marginal revenue is related to the price elasticity of demand — the responsiveness of quantity demanded to a change in price. When marginal revenue is positive, demand is elastic; and when marginal revenue is negative, demand is inelastic.

MR = P(1 + 1/Ed).