If price is 12 when the price elasticity of demand is 1 then

If price is $12 when the price elasticity of demand is -1, then marginal revenue must be:

Solution

Q) If price is $12 when the price elasticity of demand is -1, then marginal revenue must be:

Marginal Revenue:

            Marginal Revenue is the additional revenue that will be generated by increasing product sales by one unit. And the additional revenue of an extra unit of output equals the additional cost of producing that unit; in other words, producing where marginal revenue equals marginal cost.

            The simple method of deriving marginal revenue is to use the price elasticity of demand is:

                        MR = P (1+1/E)

            Where: ‘MR’ is marginal revenue

                        ‘P’ is the good’s price, and

                        ‘E’ is the price elasticity of demand.

The given problem is:

                        P = $12

                        E = -1

            MR = 12 (1+1/-1)

                   = 12 (0)

                   = 0

Therefore the Marginal Revenue is: ‘0’