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23 Nov 2019

If price is 20 and marginal revenue is 5, what is the elasticity of demand? What is the elasticity if price is 45 and marginal revenue is -9? In which of the two cases would an increase in price lead to an increase in revenues and why?

Here's what I've solved so far:

TC= Total Cost

Q= Production Level

Average Cost (AC) =TC/Q

=C=300 + 5q + 3q2/q

AC= 300/q+5+6q

MC=5+6q

Economies of scale occur when AC>0

When Avg Cost falls below 0, the economies of scale are exhausted

300/q +5+6q=0

dAC/q= --300/q2+6=0

q=2500 units

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