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Exercises · Q2
Q.

From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:

Quantity123456789
Marginal Revenue106222000-5
Kerala DhseTextbookSubjectiveImportance★★★★★est
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TRTR = cumulative MRMR (10, 16, 18, 20, 22, 22, 22, 22, 17); demand AR=TR/qAR = TR/q; elasticity e=AR/(AR−MR)e = AR/(AR-MR) is elastic where MR>0MR>0, unitary where MR=0MR=0, inelastic where MR<0MR<0.

Step 1 — Total revenue. Marginal revenue is the change in total revenue from selling one more unit, and TR=0TR = 0 at q=0q = 0, so TRTR at any quantity is the cumulative sum of the MRMR values up to that quantity.

Step 2 — Demand curve. The demand curve is the average revenue, AR=TRqAR = \dfrac{TR}{q}.

Step 3 — Price elasticity. Using the monopoly relation MR=AR(1−1e)MR = AR\left(1 - \dfrac{1}{e}\right), we get e=ARAR−MRe = \dfrac{AR}{AR - MR}.

qqMRMRTRTR (cumulative)AR=TR/qAR = TR/qe=AR/(AR−MR)e = AR/(AR-MR)
1101010∞\infty (perfectly elastic)
261684
321861.5
422051.67
52224.41.83
60223.671 (unitary)
70223.141 (unitary)
80222.751 (unitary)
9-5171.890.27 (inelastic)

The teaching point is clear: while MRMR is positive demand is elastic (e>1e > 1); where MR=0MR = 0 demand is unitary elastic (e=1e = 1); and once MRMR turns negative demand becomes inelastic (e<1e < 1).

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