Question

 2. Calculating marginal revenue from a linear demand curve

 The blue curve on the following graph represents the demand curve facing a firm that can set its own prices.

 Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.

 On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 10, 20, 25, 30, 40, and 50 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbol) to plot the results.

 Calculate the total revenue if the firm produces 10 versus 9 units. Then, calculate the marginal revenue of the 10th unit produced. The marginal revenue of the 10th unit produced is _______.

 Calculate the total revenue if the firm produces 20 versus 19 units. Then, calculate the marginal revenue of the 20th unit produced. The marginal revenue of the 20th unit produced is _______.

 Comparing your total revenue graph to your marginal revenue graph, you can see that when total revenue is decreasing, marginal revenue is _______ 

Answer 1

Quantity Demanded	Price	Total revenue=P*Q
0	150	0
10	120	1200
20	90	1800
25	75	1875
30	60	1800
40	30	1200
50	0	0

With the help of TR and Q values we plot the graph.

At Q=10, TR=1200

At Q=9, P= 123 ,TR= 1110 ( you can find out the exact value by plugging Q=9 in demand function as TR=P*Q)

MR of the 10th product= 1200-1110= 90

At Q=20, TR=1800

At Q=19, P= 95 ,TR= 1748 ( you can find out the exact value by plugging Q=19 in demand function as TR=P*Q)

MR of the 20th product= 1800-1748= 52

Comparing both the graphs, you can see that when total revenue is increasing marginal revenue is positive.

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