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Marginal revenue a seller receives

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Reference no: EM131274054

In the chapter, we noted that the marginal revenue a seller receives can be expressed as

MR = P + (ΔP/ΔQ) Å~ Q.

a. Using this formula as a starting point, show that marginal revenue can be expressed as MR = P(1 + 1/ E D ), where E D 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.

Reference no: EM131274054

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