1. Given each of the following price elasticities, determine whether marginal revenue is positive, negative, or zero.
a. -5
b. -1
c. -0.5
SAD
To determine whether marginal revenue is positive, negative, or zero, we need to consider the price elasticity of demand.
Marginal revenue (MR) is the additional revenue earned from selling one more unit of a product. It can be calculated using the formula:
MR = price × (1 + (1/|price elasticity of demand|))
Now let's determine the marginal revenue for each of the given price elasticities:
a. Price elasticity = -5
Using the formula:
MR = price × (1 + (1/|-5|))
MR = price × (1 + 1/5)
MR = price × (6/5)
In this case, the marginal revenue is positive because the price elasticity is negative, indicating an elastic demand. Therefore, the answer is positive.
b. Price elasticity = -1
Using the formula:
MR = price × (1 + (1/|-1|))
MR = price × (1 + 1/1)
MR = price × (2/1)
In this case, the marginal revenue is positive because the price elasticity is negative, indicating an elastic demand. Therefore, the answer is positive.
c. Price elasticity = -0.5
Using the formula:
MR = price × (1 + (1/|-0.5|))
MR = price × (1 + 2)
MR = price × 3
In this case, the marginal revenue is positive because the price elasticity is negative, indicating an elastic demand. Therefore, the answer is positive.
In conclusion, for each of the given price elasticities, the marginal revenue is positive.