Elasticity, total revenue and linear demand

1. Elasticity, Total Revenue and Linear Demand
QQ
P
TR
100
0 010 20 30 40 50
3-1

2. Elasticity, Total Revenue and Linear Demand
QQ
P
TR
100
0 10 20 30 40 50
80
800
0 10 20 30 40 50
3-2

3. Elasticity, Total Revenue and Linear Demand
QQ
P
TR
100
80
800
60 1200
0 10 20 30 40 500 10 20 30 40 50
3-3

4. Elasticity, Total Revenue and Linear Demand
QQ
P
TR
100
80
800
60 1200
40
0 10 20 30 40 500 10 20 30 40 50
3-4

5. Elasticity, Total Revenue and Linear Demand
QQ
P
TR
100
80
800
60 1200
40
20
0 10 20 30 40 500 10 20 30 40 50
3-5

6. Elasticity, Total Revenue and Linear Demand
QQ
P
TR
100
80
800
60 1200
40
20
Elastic
Elastic
0 10 20 30 40 500 10 20 30 40 50
3-6

7. Elasticity, Total Revenue and Linear Demand
QQ
P
TR
100
80
800
60 1200
40
20
Inelastic
Elastic
Elastic Inelastic
0 10 20 30 40 500 10 20 30 40 50
3-7

8. Elasticity, Total Revenue and Linear Demand
QQ
P TR
100
80
800
60 1200
40
20
Inelastic
Elastic
Elastic Inelastic
0 10 20 30 40 500 10 20 30 40 50
Unit elastic
Unit elastic
3-8

9. Demand, Marginal Revenue (MR) and
Elasticity
• For a linear inverse
demand function,
MR(Q) = a + 2bQ,
where b < 0.
• When
– MR > 0, demand is
elastic;
– MR = 0, demand is unit
elastic;
– MR < 0, demand is
inelastic.
Q
P
100
80
60
40
20
Inelastic
Elastic
0 10 20 40 50
Unit elastic
MR
3-9