Your table should look like this:
|
P |
Q |
TR |
MR |
MC |
|
$ 16 |
6 |
$ 96 |
--- |
$6 |
|
14 |
8 |
112 |
$ 8 |
6 |
|
12 |
10 |
120 |
4 |
6 |
|
10 |
12 |
120 |
0 |
6 |
|
8 |
14 |
112 |
- 4 |
6 |
|
6 |
16 |
96 |
- 8 |
6 |
|
4 |
18 |
72 |
- 12 |
6 |
|
2 |
20 |
40 |
- 16 |
6 |
Applying the MR = MC method, Q = 8 at a price of $14. If a quantity of 10 is selected, MC exceeds MR. Note that the first MR entry is left blank since there is no previous TR entry available for comparison. We can fill in the first MC entry since the problem states that MC is constant at $6.
At the optimal price-quantity combination ($14 and 8), is demand elastic or inelastic? Use the TR test for elasticity. Demand is elastic because if price is raised to $16, then TR drops and if price is reduced to $12, then TR increases to $120.
Can you spot a price range in the table for which demand is unit elastic? Demand is unit elastic in the price range of $10 to $12 since TR stays the same.
Over the price range of $4 to $6, is demand elastic or inelastic? It is inelastic because if price is increased from $4 to $6, then TR rises (if price is decreased from $6 to $4, then TR falls). Also, the negative MR entries signify inelasticity.
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