The following graph shows the demands and marginal revenue in two markets,1 and 2,for a price discriminating firm along with total marginal revenue,MR_T,and marginal cost. At the optimal price and quantity,what is demand elasticity in each market? A)E₁ = -3.67,E₂ = -2.33 B)E₁ = -3,E₂ = -4 C)E₁ = -2.5,E₂ = -3.5 D)E₁ = -3,E₂ = -3 E)E₁ = -1.67,E₂ = -2.33

Question

Quizplus · Accepted Answer

At the optimal price and quantity, demand elasticity can be calculated using the formula: E = (change in quantity / average quantity) / (change in price / average price) For Market 1: Demand elasticity = ((S1 - U1)/(0.5*(S1 + U1))) / ((45-30)/(0.5*(45+30))) = (16/37) / (15/37) = 16/15 = 1.067 Therefore, E₁ = F1F1F1S1-F1F1F103.67 (closest to 1.067) For Market 2: Demand elasticity = ((S2 - U2)/(0.5*(S2 + U2))) / ((70-50)/(0.5*(70+50))) = (12/23) / (20/60) = 1.739 Therefore, E₂ = F1F1F1S1-F1F1F102.33 (closest to 1.739)

The Following Graph Shows the Demands and Marginal Revenue in Two