Question

Suppose that the demand curve for a good is represented by the straight line:
P = 10 ? QD
Fill in the missing information in the following table.
Quantity Price Total Revenue Marginal Revenue
0
1
2
3
4
5
6
7
8
9
10
a. Draw a graph containing both the demand curve and marginal revenue curve.
b. Is the marginal revenue curve a straight line as well? What is the slope of the marginal
revenue curve? How does that slope compare with that of the demand curve?
c. Does the marginal revenue curve contain negative values over the specified range of
quantities? Explain why or why not.

Answer 1

The table is as under:

Quantity	Price	TR	MR
0	10	0	-
1	9	9	9
2	8	16	7
3	7	21	5
4	6	24	3
5	5	25	1
6	4	24	(-1)
7	3	21	(-3)
8	2	16	(-5)
9	1	9	(-7)
10	0	0	(-9)

--

a)

Price 10 MR Demand 5 6 10 Quantity

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b) Yes, the marginal revenue curve is a straight line.

Slope of demand curve = (-1)

Slope of MR curve = (-2)

For the demand curve, a one-unit change in price is associated with a one-unit change in quantity. For the MR curve, a two-unit change in price is associated with a one-unit change in quantity. The relationship between demand and price, and demand and MR, is negative.

In other words, as price rises (or falls), MR rises (or falls) at double the rate.

--

c) Yes, the marginal revenue curve contains negative values over the specified range of quantities.

Total Revenue rises till the 5th unit, and then begins to fall.

As TR falls, MR becomes negative.

This is because there is always a certain price at which TR is maximized. If the price is increased further, TR begins to decline.