Suppose equilibrium price in the market is $30, and the marginal revenue is $20. What is the price elasticity of demand?
A. -3.
B. 3.
C. -5.
D. -2.
Answer: A. -3.
Calculation: The relationship between price and marginal revenue relates price elasticity of demand as:
MR = P*(1 + 1/e)
20 = 30 * (1 + 1/e)
2/3 = 1 + 1/e
1/e = 1/3
This gives price elasticity of demand = -3.
You might also like to view...
Assume Ford Motor company purchases a robot that can do the welding work of ten union workers. If the robot is a perfect substitute for labor what can we be sure is true about the annual cost of using and maintaining one robot?
What will be an ideal response?
During the bank panics of the Great Depression the currency ratio
A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.
Open-market operation means buying and selling of ________ by the ________ in an effort to influence money supply
a. equity shares; president b. government securities; Fed c. mutual fund; government d. commodities; public
Each firm in a perfectly competitive industry is
A. relatively large. B. a price maker. C. a price taker. D. producing a unique product.