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28 July, 09:53

Suppose the equilibrium price in the market is $60 and the marginal revenue associated with the linear (inverse) demand function is $20. Then we know that the own price elasticity of demand is?

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  1. 28 July, 11:25
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    the own price elasticity of demand calculated with the formula

    MR (marginal revenue) = P (equilibrium price) (1 + (1 / ED) where ED is price elasticity of demand

    20 = 60 (1 + (1/ED)

    (20 / 60) - 1 = 1 / ED

    -0.6667 = 1 / ED

    ED = 1 / - 0.666667 = - 1.5
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