Question

4. The Mobile Phone Company has served Mobile, Alabama, since the 1930s as a government- authorized natural monopoly. The following table describes a portion of the demand curve for long-distance service facing Mobile Phone Company. (4 points) Mobile Phone Company Demand for Phone Hours Quantity Price Total revenue Marginal Elastic or revenue inelastic? 30 $3.65 3.58 3.50 3.43 3.35 3.27 3.20 3.12 3.05 2.97 2.89 2.82 2.74 2.67 2.59 2.51 2.44 2.36 48 2.29 49 2.21 2.13 a. Complete the table. b. How does the company's marginal revenue change as the price changes? What is the relationship between marginal revenue and price? c. At what price does demand become inelastic? d. What will happen to the elasticity of demand when a new company, Mobile Phones of Mobile, starts a competing wireless phone company? 50

Answer 1

a.

Quantity	Price	Total Revenue	Marginal Revenue	Elasticity Values	Elastic or Inelastic
30	3.65	109.5
31	3.58	110.98	1.48	-1.74	Elastic
32	3.5	112	1.02	-1.44	Elastic
33	3.43	113.19	1.19	-1.56	Elastic
34	3.35	113.9	0.71	-1.30	Elastic
35	3.27	114.45	0.55	-1.23	Elastic
36	3.2	115.2	0.75	-1.33	Elastic
37	3.12	115.44	0.24	-1.11	Elastic
38	3.05	115.9	0.46	-1.20	Elastic
39	2.97	115.83	-0.07	-1.00	Unitary Elastic
40	2.89	115.6	-0.23	-0.95	Inelastic
41	2.82	115.62	0.02	-1.03	Inelastic
42	2.74	115.08	-0.54	-0.86	Inelastic
43	2.67	114.81	-0.27	-0.93	Inelastic
44	2.59	113.96	-0.85	-0.78	Inelastic
45	2.51	112.95	-1.01	-0.74	Inelastic
46	2.44	112.24	-0.71	-0.80	Inelastic
47	2.36	110.92	-1.32	-0.66	Inelastic
48	2.29	109.92	-1	-0.72	Inelastic
49	2.21	108.29	-1.63	-0.60	Inelastic
50	2.13	106.5	-1.79	-0.56	Inelastic

b.

Marginal revenue decreases with the decrease in prices. So, marginal revenue and prices are inversely related

c. At price equals 2.89 demand becomes inelastic

d. The elasticity of demand increases with the introduction of substitutes or new firms as people would become sensitive to price and technology