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Marginal Revenue

From this, please help to figure out the Marginal Revenues and associate it with price elasticity. Just a simple analysis will be fine.

Server Performance Monitoring Price per server monitoring per month
Windows $18
UNIX $20
SAP $22
Database $22

2008 rates
Server Performance Monitoring Price per server monitoring per month
Windows $10
UNIX $12
SAP $14
Database $14

Figure 1.4
The server rates for performance monitoring were officially defined for 2008 and represents a reduction of 43% below the 2007 growth. The rate reduction is the result of Productivity Savings, Automation Projects, Install Base Growth, and Reduced Infrastructure Costs. The number of servers that is being monitored by is at 70,000 which is a growth of 10,000 servers from the previous year.
The Price Elasticity of demand is equal to the % change in quantity demand divided % change in price. The % change is given by the new value divided by the old value minus 1. Therefore, we have % change in quantity equal 70,000 divided by 60,000 minus 1 since the number of servers being monitored in 2008 is 70,000 which represents a 10,000 growth. So in 2007 it would have been 70,000 - 10,000 = 60,000 servers. The % changes in quantity = 70,000 / 60,000 - 1 = 16.67% and the % change in price = -43% which is given. The price elasticity is equal to % change in quantity demanded divided % change in price. The Price Elasticity = 16.67% / -43%. Therefore, the price elasticity is equal to -0.388 which is relatively inelastic.
Looking at the Total Revenue (TR) by taking the average price for monitoring server performance for 2007 and 2008. The average price for monitoring server performance for 2007 was 20.5 dollars and the average price for 2008 was 12.5. The TR per month for 2007 is 60, 000 x 20.5 = 1,230,000 and the TR per month for 2008 is 70,000 x 12.5 = 875,000. The TR falls by 355,000. As we know total revenue always falls when price is reduced over an inelastic region.

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Marginal Revenue is really given by TR(2008) - TR(2007)

From the example above, Total Revenue in 2008 = ...

Solution Summary

The solution assists with figuring out the marginal revenues and associates with price elasticity.

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