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) -2.
B) 1.
C) 2.
D) It cannot be determined from the information contained in the question.

Question

Quizplus · Accepted Answer

The own price elasticity of demand can be determined using the relationship between marginal revenue (MR) and elasticity: MR = P(1 + 1/E), where P is the price and E is the elasticity. Given MR = $50 and P = $100, we can solve for E: $50 = $100(1 + 1/E), leading to E = -2.

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