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Expert Answer

S Bhattacharya answered this

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47,344 answers

Linear demand function: P = a - bQ.

From the given demand graph:

When Q = 0, P = 200 = a

When Q = 20, P = 0.

0 = 200 - 20b

20b = 200

b = 10

Linear demand function: P = 200 - 10Q

Total revenue (TR) = P x Q = 200Q - 10Q2

Marginal revenue (MR) = dTR/dQ = 200 - 20Q

(1)

Data table:

Q P TR

0 200 0

4 160 640

8 120 960

10 100 1000

12 80 960

16 40 640

20 0 0

Graph:
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(2)

When Q = 3, P = 200 - 3 x 10 = 200 - 30 = 170 and TR = 170 x 3 =

510

When Q = 4, P = 200 - 4 x 10 = 200 - 40 = 160 and TR = 160 x 4 =

640

MR of 4th unit = TR / Q = (640 - 510) / (4 - 3) = 130/1

= 130

(2)

When Q = 7, P = 200 - 7 x 10 = 200 - 70 = 130 and TR = 130 x 7 =

910

When Q = 8, P = 200 - 8 x 10 = 200 - 80 = 120 and TR = 120 x 8 =

960

MR of 8th unit = TR / Q = (960 - 910) / (8 - 7) = 50/1 =

50

(3) Using MR function: MR = 200 - 20Q

Data table:

Q MR

0 200

4 120

8 40

10 0

12 -40

16 -120

20 -200

Graph:
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(4)

TR is Maximized when MR is zero.

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