”MR
”MR
MR = 0
MR = 1
Answer is Wrong!
Answer is Right!
As you can see, when the price elasticity of demand is equal to 1, the demand curve is a straight line. This means that the percentage change in quantity demanded is equal to the percentage change in price. In this case, marginal revenue will be equal to zero.
Here is a brief explanation of each option:
- Option A: MR > 0. This is not possible when e = 1. When e = 1, demand is unit elastic. This means that a 1% increase in price will lead to a 1% decrease in quantity demanded. In this case, marginal revenue will be equal to zero.
- Option B: MR < 0. This is possible when e < 1. When e < 1, demand is inelastic. This means that a 1% increase in price will lead to a less than 1% decrease in quantity demanded. In this case, marginal revenue will be negative.
- Option C: MR = 0. This is possible when e = 1. When e = 1, demand is unit elastic. This means that a 1% increase in price will lead to a 1% decrease in quantity demanded. In this case, marginal revenue will be equal to zero.
- Option D: MR = 1. This is not possible. Marginal revenue can never be greater than price.