Q.What will be the relation between price and marginal revenue, if the magnitude of price elasticity of demand is infinity (∞)?
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Start your 14-day free trial to unlock the full solution →Infinite price elasticity means a perfectly horizontal demand curve, under which Price = Average Revenue = Marginal Revenue.
When the magnitude of price elasticity of demand is infinity, the demand curve facing the seller is perfectly horizontal (flat) at the ruling price — this is exactly the situation of an individual firm under perfect competition, which is a 'price taker'. Because the firm can sell any quantity it wishes at the going market price without having to lower the price to sell more, each additional unit adds exactly the same amount (the price itself) to total revenue.
Since Average Revenue (AR) always equals price (AR = Total Revenue / Quantity = Price), and here Marginal Revenue (MR) also equals price at every level of output, we get:
Price = AR = MR
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