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 in market 1 can be calculated using the following formula: E₁ = (Midpoint quantity/Midpoint price) * (P1/Q1) = ((F1F1S1 - F1F1S0) / ((F1F1S1 + F1F1S0)/2)) * (P1/Q1) Using the graph, we can find: F1F1S1 = 22, F1F1S0 = 7, P1 =13, Q1 = 3 E₁ = ((22-7)/((22+7)/2)) * (13/3) = 3.67 Similarly, demand elasticity in market 2 can be calculated using the same formula: E₂ = ((22-7)/((22+7)/2)) * (8/2) = 2.33 Therefore, the answer is (A) E₁ = F1F1S1-F1F1S0/((F1F1S1+F1F1S0)/2) * P1/Q1 = 3.67; E₂ = F1F1S1-F1F1S0/((F1F1S1+F1F1S0)/2) * P2/Q2 = 2.33.

The Following Graph Shows the Demands and Marginal Revenue in Two