Compute the marginal revenue when the price elasticity of demand is −0.25.
A) −3P, meaning marginal revenue is negative and 3 times greater than price.
B) 3P, meaning marginal revenue is positive and 3 times greater than price.
C) −0.33P, meaning that marginal revenue is negative and one-third of the price.
D) −0.25P, meaning that marginal revenue is negative and one-fourth of the price.

Question

Quizplus · Accepted Answer

Marginal revenue (MR) is calculated as MR = P(1 + 1/Ed), where Ed is the price elasticity of demand. With Ed = -0.25, MR = P(1 + 1/(-0.25)) = P(1 - 4) = -3P.

Compute the Marginal Revenue When the Price Elasticity of Demand