2. Calculating marginal revenue from a linear demand curve The blue curve on the
ID: 1205532 • Letter: 2
Question
2. Calculating marginal revenue from a linear demand curve The blue curve on the following graph represents the demand curve facing a firm that can set its own prices Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly Graph Input Tool Market for Goods 200 180 160 E 140 Quant 28 Demand (Units) Demand Price (Dollars per unit) 60.00 100 80 60 40 emand 0 4 8 12 16 20 24 28 32 36 40 QUANTITY (Units) On the previous graph, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 8, 16 20, 24, 32, or 40 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbol) to plot the results. 2000 1800 Total Revenue 1600 1400 1 200 Z 1000 800 O 600 400 200 0 4 812 16 20 24 28 32 36 40 QUANTITY OF OUTPUT (Number of units)Explanation / Answer
If we compare the total revenue graph with marginal revenue graph, we can see that when total revenue is increasing, marginal revenue is positive.
This reflects the general relationship between the two.
Relationship between total revenue and marginal revenue is as follows -
When total revenue is increasing, marginal revenue remains positive.
When total revenue is at its maximum, marginal revenue is zero.
When total revenue is decreasing, marginal revenue become negative.
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