From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
| Quantity | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
|---|---|---|---|---|---|---|---|---|---|
| Marginal Revenue | 10 | 6 | 2 | 2 | 2 | 0 | 0 | 0 | -5 |
= cumulative (10, 16, 18, 20, 22, 22, 22, 22, 17); demand ; elasticity is elastic where , unitary where , inelastic where .
Step 1 — Total revenue. Marginal revenue is the change in total revenue from selling one more unit, and at , so at any quantity is the cumulative sum of the values up to that quantity.
Step 2 — Demand curve. The demand curve is the average revenue, .
Step 3 — Price elasticity. Using the monopoly relation , we get .
| (cumulative) | ||||
|---|---|---|---|---|
| 1 | 10 | 10 | 10 | (perfectly elastic) |
| 2 | 6 | 16 | 8 | 4 |
| 3 | 2 | 18 | 6 | 1.5 |
| 4 | 2 | 20 | 5 | 1.67 |
| 5 | 2 | 22 | 4.4 | 1.83 |
| 6 | 0 | 22 | 3.67 | 1 (unitary) |
| 7 | 0 | 22 | 3.14 | 1 (unitary) |
| 8 | 0 | 22 | 2.75 | 1 (unitary) |
| 9 | -5 | 17 | 1.89 | 0.27 (inelastic) |
The teaching point is clear: while is positive demand is elastic (); where demand is unitary elastic (); and once turns negative demand becomes inelastic ().
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