Attempts: Average: 15 2. Calculating marginal revenue from a linear demand curve

Question

Attempts: Average: 15 2. Calculating marginal revenue from a linear demand curve The blue curve on the following graph represents the demand curve facing a firm that can set its own prices Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Market for Goods 200 180 160 140 120 100 80 60 40 20 Quantity Demanded (Units) Demand Price Dollars per unit) 10 100.0 Demand 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Units)

Explanation / Answer

A) Total Revenue (TR) = Price per unit * Quantity

TR= 10*100 = $1,000

B) At 4th unit TR=650 and

at 3rd unit TR= 500

Difference i.e. marginal revenue for an extra unit= $150

C) TR for 8th unit is $950 and for the 7th unit is $900

MR= (950-900)/1= $50 [formula for MR = change in TR/change in qantity]

D) When TR is increasing, MR is also increasing but at a decreasing rate showing dimishing marginal utility but is positive.

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