Monopolist charges rupees 30 for his product he notices that they elas...
MR = AR (e-1/e)
= P (e-1/e)
= 30 (2-1/2)
= 30/2
= 15 (C)
Monopolist charges rupees 30 for his product he notices that they elas...
Explanation:
To determine the marginal revenue in market A, we need to understand the concept of elasticity and its relationship with pricing and revenue.
1. Elasticity:
Elasticity measures the responsiveness of the quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
2. Marginal Revenue:
Marginal revenue is the additional revenue earned from selling one more unit of a product. It is calculated as the change in total revenue divided by the change in quantity sold.
3. Relationship between Elasticity and Marginal Revenue:
In a monopolistic market, the demand curve is downward sloping, meaning that as the price increases, the quantity demanded decreases. The elasticity of demand determines the relationship between price and revenue.
- If demand is elastic (elasticity > 1), a decrease in price will lead to a proportionally larger increase in quantity demanded, resulting in higher total revenue. Therefore, marginal revenue will be positive.
- If demand is inelastic (elasticity < 1),="" a="" decrease="" in="" price="" will="" result="" in="" a="" proportionally="" smaller="" increase="" in="" quantity="" demanded,="" leading="" to="" a="" decrease="" in="" total="" revenue.="" hence,="" marginal="" revenue="" will="" be="" />
- If demand is unit elastic (elasticity = 1), a change in price will result in an equal percentage change in quantity demanded, and total revenue remains constant. Therefore, marginal revenue is zero.
4. Calculation of Marginal Revenue:
Given that the elasticity in market A is 2, which is greater than 1, we can conclude that demand in market A is elastic. Hence, to maximize revenue, the monopolist should decrease the price.
Now, to calculate the marginal revenue, we need the change in total revenue and the change in quantity sold.
Let's assume the monopolist decreases the price from rupees 30 to rupees 29 in market A, resulting in an increase in quantity demanded from Q1 to Q2.
To calculate the change in total revenue:
- Calculate the total revenue at the original price: TR1 = Price * Quantity demanded at rupees 30.
- Calculate the total revenue at the new price: TR2 = Price * Quantity demanded at rupees 29.
- Calculate the change in total revenue: Change in TR = TR2 - TR1.
To calculate the change in quantity sold:
- Change in Quantity = Q2 - Q1.
Finally, divide the change in total revenue by the change in quantity sold to obtain the marginal revenue in market A.
To make sure you are not studying endlessly, EduRev has designed CA Foundation study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in CA Foundation.