What is the marginal revenue [MR] equation for a firm with the demand function P = a - bQ,where P = price and Q = quantity?
A)MR = b - Q
B)MR = a - 2bQ
C)MR = a + 2Q
D)MR = 2Q
E)MR = 2a + Q

Question

Quizplus · Accepted Answer

Marginal revenue (MR) is the additional revenue that a firm earns by selling one additional unit of output. It can be found by taking the derivative of the total revenue (TR) function with respect to quantity (Q):

MR = dTR/dQ

The total revenue function for this firm is:

TR = P x Q = (a - bQ)Q = aQ - bQ^2

Taking the derivative of TR with respect to Q, we get:

dTR/dQ = a - 2bQ

Therefore, the marginal revenue equation is MR = a - 2bQ. Answer B is the correct choice.

What Is the Marginal Revenue [MR] Equation for a Firm