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Elastic or Inelastic Demand for Marshmallows

The question is given below:

Here is some data on the demand for marshmallows:

Price Quantity
$10 1100
$ 8 1300
$ 6 1700
$ 4 2300
$ 2 3100

a) Is demand elastic or inelastic in the $6-$8 price range? How do you know?

b) If the table represents the demand faced by a monopoly firm, then what is that firm's marginal revenue as it increases output from 1700 units to 2300 units? Show all work.

Solution Preview

Before I look at the question at hand, let me start by giving you a brief overview of elasticity of demand.

Elasticity may be defined as a measure of responsiveness which tells us how a dependent variable such as quantity responds to a change in an independent variable such as price. It is categorized as a cause-and-effect relationship in economics (in which you ask the question, 'if one thing happens, how will it affect something else') and can be applied to income, the quantity of a product supplied by a firm, or to demand.

In the case of demand, what you will ...

Solution Summary

This solution is comprised of a step-by-step explanation of whether the demand for marshamallows is elastic or inelastic based on the price range given in the first part of the question. The solution also explains how to calculate marginal revenue for the second part of the question. Before looking at the actual questions given though, elasticity is defined and information is presented as to how to determine, in general, whether demand is elastic or inelastic. Note that this solution is also adequately referenced.