Suppose the equilibrium price in the market is $24 and the price elasticity of demand for the linear demand function at the market equilibrium is −1.5.Then we know that:
A) demand is inelastic.
B) marginal revenue is $8.
C) marginal revenue is $20.
D) demand is unit elastic.

Question

Quizplus · Accepted Answer

Marginal revenue (MR) can be calculated using the price elasticity of demand (PED) formula at the equilibrium point, where PED = -1.5 and P = $24. The formula relating PED, MR, and P is MR = P(1 + 1/PED). Substituting the given values, MR = $24(1 + 1/(-1.5)) = $24(1 - 2/3) = $24(1/3) = $8. This calculation shows that when demand is elastic (|PED| > 1), the marginal revenue is positive but less than the price.

Suppose the Equilibrium Price in the Market Is $24 and the Price