Suppose the equilibrium price in the market is $100 and the marginal revenue associated with the linear (inverse)demand function is $50.Then we know that the own price elasticity of demand is:
A) −2.
B) 1.
C) 2.
D) It cannot be determined from the information contained in the question.

Question

Quizplus · Accepted Answer

The own price elasticity of demand (E) can be calculated using the formula E = (1 - MR/P), where MR is the marginal revenue and P is the price. Substituting the given values, E = 1 - (50/100) = 1 - 0.5 = 0.5. However, the correct interpretation of the formula for elasticity in the context of a linear demand curve is E = (P - MR) / MR, which gives E = (100 - 50) / 50 = 50 / 50 = 1. This discrepancy suggests a mistake in the explanation process. The correct approach to find the elasticity involves understanding that at the midpoint of a linear demand curve, the price elasticity of demand is -1, and the relationship between marginal revenue, price, and elasticity is given by MR = P * (1 + (1/E)). Rearranging this formula to solve for E gives us E = (P/MR) - 1. Substituting P = 100 and MR = 50 gives E = (100/50) - 1 = 2 - 1 = 1, which indicates an error in the initial calculation and explanation. The correct calculation should directly relate the given information to the formula for elasticity in the context of marginal revenue and price, reflecting the principles of microeconomic theory. Given the oversight in the initial explanation, the correct interpretation involves a more nuanced understanding of the relationship between price, marginal revenue, and elasticity in the context of a linear demand curve, which was not accurately captured.

Suppose the Equilibrium Price in the Market Is $100 and the Marginal