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. Graph Input Tool ? Market for Goods 250 225 25 200 Quantity Demanded (Units) Demand Price (Dollars per unit) 175 125.00 150 PRICE (Dollars per unit) 125 100 75 Demand 50 25 + 0 + 0 5 10 15 20 25 30 35 10 45 50 QUANTITY (Units)

The Marginal Revenue/ Quantity MUST be a straight line

Answer 1

QP($) TR($)=P*Q MR($) = ATR/AQ 0 250 0 10 200 2000 200 20 150 3000 100 25 125 3125 25 30 100 3000 -25 40 50 2000 -100 50 0 0 -200

3443 3130 2817 2504 2191 1878 TR ($) 1565 TR 1252 939 626 313 0 5 10 O 15 40 45 50 55 20 25 30 35 Quantity (Number of units)

TR of producing 9 units = $205 * 9 = $1845

TR of producing 10 units = $200 * 10 = $2000

The Marginal revenue of 10th unit produced = 2000 - 1845 = $155

TR of producing 19 units = $155 * 19 = $2945

TR of producing 20 units = $150 * 20 = $3000

The Marginal revenue of 20th unit produced = 3000 - 2945 = $55

250 200 150 100 50 MR ($) 0 0 5 10 TR 15 20 25 30 35 40 45 50 55 -50 -100 -150 -200 -250 Quantity (Number of units)

Answer to blank: Negative