Marginal Revenue and Price Elasticity of Demand

The Marginal Revenue values have an association with the price elasticity of demand. The detailed association is not procured here. It is adequate to notice only one factor – price elasticity of demand is more than 1 when the Marginal Revenue has a positive value and becomes less than the units when Marginal Revenue has a negative value. This can be clearly seen in Table given below.

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 good increases, Marginal Revenue value becomes smaller and the value of the price elasticity of demand also becomes smaller. Recollect that the demand curve is called elastic at a point where price elasticity is greater than unity, inelastic at a point where the cost price elasticity is less than unity and unitary elastic when price elasticity is equal to 1.

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