A monopoly is charging $60 for its product and at this price, the price elasticity of demand is 1.5. What is its marginal revenue?

Question

Quizplus · Accepted Answer

In a monopoly, the marginal revenue can be found using the formula: MR = P(1 + 1/Ed), where P is the price and Ed is the price elasticity of demand. 
So, MR = $60(1 + 1/1.5) = $60(1.67) = $100.20. 
However, since the demand is elastic (Ed > 1), the marginal revenue is less than the price, and the difference between the price and marginal revenue decreases as demand becomes more elastic. Therefore, the closest answer option is D) $20.

A Monopoly Is Charging $60 for Its Product and at This