If the price elasticity of demand is 1.2 and the marginal revenue is $20, what is the price of the product?

Question

Quizplus · Accepted Answer

The price can be calculated using the formula for the price elasticity of demand (PED) which is PED = (% change in quantity demanded) / (% change in price). When marginal revenue (MR) is given and PED is known, the price (P) can be found using the formula P = MR / (1 - (1/PED)). Substituting the given values, P = $20 / (1 - (1/1.2)) = $20 / (1 - 0.8333) = $20 / 0.1667 = $120.

If the Price Elasticity of Demand Is 1