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1. The Jazz learns that own-price elasticity is ‒0.75. What does this tell us about marginal...

1. The Jazz learns that own-price elasticity is ‒0.75. What does this tell us about marginal revenue? Explain.

2. Why was the “reverse-order draft” invented?

3. Why did the 0.400 hitter vanish in baseball?

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Answer #1

Q1) According to the inverse elasticity rule, Marginal Revenue = P (1 - 1/e)

where Marginal Revenue is the addition to the total revenue when an additional unit of output is sold.

P is the market price of the product.

e is the own price elasticity.

Marginal Revenue = P (1 - 1/e)

Considering the above equation,

If the absolute value of e = 1, then Marginal revenue = 0

If the absolute value of e > 1, then marginal revenue > 0

If the absolute value of e < 1, then marginal revenue < 0

In this case, the absolute value of own price elasticity is less than 1 that is it is 0.75, this means that the marginal revenue will also be less than 0.

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