Compute the marginal revenue when the price elasticity of de

Compute the marginal revenue when the price elasticity of demand is ?0.10.

Multiple Choice

a) ?3P, meaning marginal revenue is negative and 3 times greater than price.

b) ?9P, meaning marginal revenue is negative and 9 times greater than price.

c)   3P, meaning marginal revenue is positive and 3 times greater than price.

d)   9P, meaning marginal revenue is positive and 9 times greater than price

Solution

ANSWER:

WE KNOW THAT :

MR = P * ( 1 - ( 1 / PED)

PED = -0.1

MR = P * ( 1 - ( 1 / -0.1)

MR = P * ( 1 - 10)

MR = P ( -9)

MR = -9P

HENCE OPTION B IS THE RIGHT ANSWER.