Suppose the equilibrium price in the market is $100 and the marginal revenue associated with the linear (inverse) demand function is $50.Then we know that the own price elasticity of demand is
A)-1.
B)1.
C)2.
D)cannot be determined from the information contained in the question.

Question

Quizplus · Accepted Answer

The own price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. In this case, the equilibrium price is $100 and the marginal revenue is $50. The marginal revenue is the change in revenue divided by the change in quantity. So, the marginal revenue of $50 means that for every 1% increase in quantity, revenue increases by $50. The equilibrium price of $100 means that at that price, quantity demanded equals quantity supplied. So, if the price increases by 1%, quantity demanded will decrease by 1%. Therefore, the own price elasticity of demand is -1.

Suppose the Equilibrium Price in the Market Is $100 and the Marginal