Price Elasticity and Price Changes

The relation between price elasticity and total revenue can be further clarified by examining Figure 5.4 and Table 5.2. Figure 5.4(a) reproduces the demand curve shown in Figure 5.3 along with the associated marginal revenue curve. The demand curve shown in Figure 5.4(a) is of the general linear form where a is the intercept and b is the slope coefficient. It follows that total revenue (TR) can be expressed as

By definition, marginal revenue (MR) is the change in revenue following a one-unit expansion in output, ATR/AQ, and can be written

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