Compute the marginal revenue when the price elasticity of demand is −0.10.
A) −9P, meaning marginal revenue is negative and 9 times greater than price.
B) 9P, meaning marginal revenue is positive and 9 times greater than price.
C) −3P, meaning marginal revenue is negative and 3 times greater than price.
D) 3P, meaning marginal revenue is positive and 3 times greater than price.

Question

Quizplus · Accepted Answer

The marginal revenue (MR) can be calculated using the formula MR = P(1 + 1/E), where P is the price and E is the price elasticity of demand. Given E = -0.10, substituting into the formula gives MR = P(1 + 1/-0.10) = P(1 - 10) = -9P, indicating that marginal revenue is negative and 9 times greater than the price.

Compute the Marginal Revenue When the Price Elasticity of Demand