Question

The next two questions refer to the following table showing a monopolist’s demand schedule

Price	Quantity
$50	300
40	600
20	800
10	1,000

What is marginal revenue for a price decrease from $50 to $40?

a.         $9,000

b.         $24,000

c.         $30

d.         $20

e.         $40

If price falls from $20 to $10, then,

a.         MR = -$10, and demand is inelastic.

b.         MR = $10, and demand is elastic.

c.         MR = $30, and demand is elastic.

d.         MR = -$30, and demand is inelastic.

e.         none of the above

Answer 1

Since the MR is the additional revenue added by the additional unit of outputs.

Hence MR for a price decrease from $50 to $40 is $30.

Hence option c is the correct answer.

2.

If price falls from $20 to $10, then, MR will be -$30 and there is a direct relationship between change in the price and change in the expenditure. Hence the demand is inelastic.

As it can be seen in the table that when the price decreases from $20 to $10, then total expenditure (TR) decreases from $16,000 to $10,000. Hence the demand is inelastic.

Hence option d is the correct answer.