Question

A firm's demand function is defined as Q = 50 – 5P.

i. Use this function to calculate total revenue when price is equal to 5 and when price is equal to 4.

ii. What is the marginal revenue between P = 5 and P = 4?

Answer 1

ANSWER:

1)

Q = 50 - 5p

when price is 5 then q = 50 - 5 * 5 = 50 - 25 = 25

when price is 4 then q = 50 - 5 * 4 = 50 - 20 = 30

total revenue when price is 5 = price * quantity = 5 * 25 = 125

total revenue when price is 4 = price * quantity = 4 * 30 = 120

2)

marginal revenue = (revenue when price is 5 - revenue when price is 4) / (quantity when price is 5 - quantity when price is 4) = ( 125 - 120) / (25 - 30) = 5 / -5 = -1

so the marginal revenue between p = 5 and p = 4 is -1.