Relationship between marginal revenue and price elasticity
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Can someone help me understand the relationship between marginal revenue and price elasticity?
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This solution helps explore the relationship between marginal revenue and price elasticity within the context of economics. This solution is 498 words in length and contains examples to help clarify the concept.
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Let's say that there is a city with 5 bridges, and each charges $5/day. 100 people use the bridge everyday (hence each bridge makes $500/day) One bridge decides that it will charge $6 instead, what do you think will happen (assume that the other 4 bridges aren't too far away)? Most likely, a large percentage of the traveller will use the other 4 bridges (say 70 people decided to use other bridges), then the new revenue is only $180.
But what happens if all bridges charge $6/day? To all travellers, there is no cheaper alternatives, so they will stick with their original route. Each bridge would still serve 100 people and it makes $600.
The restaurant example is identical. If only one cities raises tax, ...
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