In case the demand elasticity under imperfect competition is unity, the marginal revenue will be:
equal to zero.
Marginal revenue is linked to price and the elasticity of demand by the relationship MR = P(1 − 1/Ed), where Ed is the price elasticity of demand. This formula lets us find MR directly from the elasticity value.
When the demand elasticity is unity, Ed = 1. Substituting, MR = P(1 − 1/1) = P(1 − 1) = P × 0 = 0. So at the point where demand is unit elastic, marginal revenue is exactly zero.
This makes economic sense: unit elasticity is the point at which total revenue is at its maximum, and at a maximum the rate of change of total revenue - which is marginal revenue - must be zero. Above unit elasticity MR is positive, below it MR is negative; at unity it is exactly zero.
The other options do not follow from the formula. Only 'equal to zero' matches MR when elasticity equals one.
Hence, when the demand elasticity is unity, the marginal revenue will be equal to zero.
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