In case the elasticity of demand on an average revenue curve is equal to unity, the marginal revenue will be :
equal to zero
The average revenue (AR) curve is the firm's demand curve, and marginal revenue (MR) is related to AR and the price elasticity of demand \(e\) by the formula \(MR = AR\left(1 - \dfrac{1}{e}\right)\).
When elasticity equals unity, \(e = 1\), so \(MR = AR\left(1 - \dfrac{1}{1}\right) = AR \times 0 = 0\).
Intuitively, at unit elasticity a small price change leaves total revenue unchanged, so the extra revenue from selling one more unit is nil. Where \(e \gt 1\) MR is positive, and where \(e \lt 1\) MR is negative.
Hence, equal to zero.
Similar Questions
Match the items of List - I with those of List - II and indicate the correct code :
List - I List - II (a) Substitute Goods (i) Negative Cross Elasticity (b) Complementary Goods (ii) Low Price Elasticity (c) Giffen Goods (iii) Positive Cross Elasticity (d) High Income Group Consumption Goods (iv) Positive Price Elasticity Codes :
(a) (b) (c) (d)
The following is the demand function in the small market :
\(Q = 50 - 5P\)
Where ‘Q’ denotes quantity in physical units and ‘P’ denotes price of the commodity. At price ₹ 5, the point price elasticity of demand would be :
A rectangular hyperbola shaped demand curve on all its points has :
A rectangular hyperbola shaped demand curve on all its points has
Match the items of the following two lists and suggest the correct code :
List – I List – II a. Zero Income Elasticity i. Substitute goods b. Unit Cross Elasticity ii. Complementary goods c. Positive Cross Elasticity iii. Indifferent goods d. Negative Cross Elasticity iv. Independent goods Choose the correct option :
Codes :
a b c d
Important Questions from The elasticity of demand and its measurement
When the price increase of a commodity is followed by increased total revenue, which one of the following is the price elasticity coefficient?
Which factor is mainly responsible for increase in demand of natural resources?
When the price of a good falls from Rs. 20 per unit to Rs. 15 per unit, its demand rises by 25 percent. Calculate the price elasticity of demand. (by percentage method)
The interest elasticity of demand for money in liquidity trap is:
What is the value of price elasticity of demand for the rectangular hyperbola demand curve ?
