What is the marginal revenue of the 3rd unit? Does this table show an elastic se

Question

What is the marginal revenue of the 3rd unit? Does this table show an elastic segment or an inelastic segment of this product's demand curve? Calculate the output effect from dropping the price from $6.50 to $6.00. Calculate the price effect from dropping the price from $6.50 to $6.00. The table above shows the demand and cost data facing a monopolistic ally competitive producer of canvas bags. What are the firm's profit-maximizing or loss-minimizing price and quantity? At the profit-maximizing or loss-minimizing output level, what are this firm's profits (or losses)? Calculate marginal revenue for this firm if it drops its price from $10 to $8 and increases production from 5 to 6 units. Would you rather be the owner of a firm earning zero accounting profits or zero economic profits? Why?

Explanation / Answer

MR=TRn-TRn-1

a)Marginal Revenue for the third unit is 5.5

b)This represents the elastic portion of the demand curve since the percentage change in quantity to a change in price is more.

c)As price falls from 6.5 to 6 output changes from 3 to 4

output effect=6*1=6

d)As price falls from 6.5 to 6 output changes from 3 to 4

price effect=(6-6.5)*3=-1.5

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Quantity Price Total revenue Marginal Revenue 1 7.5 7.5 2 7 14 6.5 3 6.5 19.5 5.5 4 6 24 4.5 5 5.5 27.5 3.5 6 5 30 2.5

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