The marginal revenue values have an association with the price elasticity of demand. It does not procure a detailed association here. It is adequate to notice only one factor, price elasticity of demand, which is more than one when the marginal revenue has a positive value and becomes less than the units when the marginal revenue has a negative value. This can be clearly seen in the given table.
Marginal Revenue and Price Elasticity
| q | p | Marginal Revenue | Elasticity |
| 0 | 10 | – | – |
| 1 | 9.5 | 9.5 | 19 |
| 2 | 9 | 8.5 | 9 |
| 3 | 8.5 | 7.5 | 5.67 |
| 4 | 8 | 6.5 | 4 |
| 5 | 7.5 | 5.5 | 3 |
| 6 | 7 | 4.5 | 2.33 |
| 7 | 6.5 | 3.5 | 1.86 |
| 8 | 6 | 2.5 | 1.5 |
| 9 | 5.5 | 1.5 | 1.22 |
| 10 | 5 | 0.5 | 1 |
| 11 | 4.5 | -0.5 | 0.82 |
| 12 | 4 | -1.5 | 0.67 |
| 13 | 3.5 | -2.5 | 0.54 |
As the quantity of the goods increases, the marginal revenue value becomes smaller, and the value of the price elasticity of demand also becomes smaller. Recall that the demand curve is known as elastic at a point where the price elasticity is greater than unity, and it is inelastic at a point where the cost price elasticity is less than unity and unitary elastic when the price elasticity is equal to one.
This concept was about the marginal revenue and price elasticity of demand. To learn more about such interesting concepts, keep visiting our website.
| Important Topics in Economics: |
Comments