Suppose that along a linear demand curve,the elasticity of demand is equal to 1 when the price is $4 and the quantity is 100 units.Then the
A) marginal revenue is negative when output exceeds 100 units.
B) elasticity of demand is less than 1 when output exceeds 100 units.
C) marginal revenue is 0 when output equals 100 units.
D) Only answers A and B are correct.
E) Answers A, B, and C are correct.

Question

Quizplus · Accepted Answer

When the elasticity of demand is equal to 1, it means we are at the unitary elasticity point on the demand curve, where total revenue is maximized. At this point, marginal revenue is indeed 0, as increasing or decreasing the price from this point will start to decrease total revenue. When the quantity exceeds 100 units, the price must decrease to sell more units (since we're moving down along a linear demand curve), making the elasticity of demand less than 1 (inelastic), indicating that percentage changes in quantity demanded are less responsive to price changes. This also means that marginal revenue becomes negative because, at an inelastic portion of the demand curve, a decrease in price leads to a less than proportionate increase in quantity demanded, reducing total revenue.

Suppose That Along a Linear Demand Curve,the Elasticity of Demand