econhw6 - Homework 6 Econ 103 Delavan Due October 17th 2008...

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Econ 103 Delavan Due October 17 th 2008 Deniz Gorgun 10/15/2008 1.The demand schedule for the product produced by a monopolist is given in the table below. Complete the table by computing total revenue and marginal revenue. Quantity Total Marginal demanded Price revenue revenue 1 325 325 2 300 600 275 3 275 825 225 4 250 1000 175 5 225 1125 125 6 200 1200 75 7 175 1225 25 8 150 1200 -25 9 125 1125 -75 10 100 1000 -125 11 75 825 -175 12 50 600 -225 13 25 325 -275 14 0 0 -325 (a) What do the data in the table indicate about the relationship between total revenue and marginal revenue? Explain. The total revenue will be maximized when the marginal revenue is zero. This data shows us that this is where the demand is equal to 7 units. This also shows us that, if selling another unit increases the total revenue, marginal revenue must be greater than zero, and when marginal revenue is zero, selling another good will not change the total revenue. (b) What do the data in the table indicate about the elasticity of demand? Elasticity of demand = - %change in quantity demanded / %change in price Calculating the elasticity of demand of this good between the points where the demand is equal to 7 units, and where the demand is 1 unit, we see a price increase of 86%, but the demand is decreased by %600. The demand is very elastic.
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econhw6 - Homework 6 Econ 103 Delavan Due October 17th 2008...

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