9781118041581

FIGURE 3.3

Demand, Revenue, and

Marginal Revenue

In part (a), elasticity

varies along a linear

demand curve. The

point of maximum

revenue occurs at a

price and quantity such

that MR 0 or,

equivalently, EP1.

$ 400

300

200

100

400 1,200 1,600 Quantity Demanded

Price

800

Marginal

revenue

Demand is

price elastic.

Demand is

price inelastic.

B

M

A

Elasticity = –1

MR = 400 – .5Q

P = 400 – .25Q

$ 160,000

120,000

400 1,200 Quantity Demanded

Revenue

800

(b)

Total revenue

R = 400Q – .25Q^2

0

0

(a)

A B

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