Figure

Relations Among Price Elasticity and Marginal, Average, and Total Revenue: (a) Demand (Average Revenue) and Marginal Revenue Curves; (b) Total Revenue

In the range in which demand is elastic with respect to price, marginal revenue is positive and total revenue increases with a reduction in price. In the inelastic range, marginal revenue is negative and total revenue decreases with price reductions.

Relations Among Price Elasticity and Marginal, Average, and Total Revenue: (a) Demand (Average Revenue) and Marginal Revenue Curves; (b) Total Revenue

In the range in which demand is elastic with respect to price, marginal revenue is positive and total revenue increases with a reduction in price. In the inelastic range, marginal revenue is negative and total revenue decreases with price reductions.

Quantity demanded per time period (a)
(b)

The relation between the demand (average revenue) and marginal revenue curves becomes clear when one compares Equations 5.8 and 5.9. Each equation has the same intercept a. This means that both curves begin at the same point along the vertical price axis. However, the marginal revenue curve has twice the negative slope of the demand curve. This means that the

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