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| In the chapter, we noted that the marginal revenue a seller receives can be expressed as MR = P + (?P/?Q) × Q. a. Using this formula as a starting point, show that marginal revenue can be expressed as MR = P(1 + 1/ ED), where ED is the price elasticity of demand. b. Using your knowledge about the price elasticity of demand, explain why the marginal revenue a firm with market power receives must always be less than the price. c. Using your knowledge of the price elasticity of demand, explain why the marginal revenue a perfectly competitive firm receives must be equal to the price. |
