AP Microeconomics Quiz: Marginal Revenue and Elasticity

📚 Quick Study Guide

• 📈 Marginal Revenue (MR): The change in total revenue from selling one additional unit. Formula: $MR = \frac{\Delta TR}{\Delta Q}$, where TR is total revenue and Q is quantity.
• elasticity = \frac{\% \Delta Q}{\% \Delta P}$.
• 🍎 Elastic Demand: Demand is elastic when the absolute value of price elasticity of demand is greater than 1 ($|E_d| > 1$). A small change in price leads to a large change in quantity demanded.
• 🧱 Inelastic Demand: Demand is inelastic when the absolute value of price elasticity of demand is less than 1 ($|E_d| < 1$). A change in price has relatively little effect on quantity demanded.
• ⚖️ Unit Elastic Demand: Demand is unit elastic when the absolute value of price elasticity of demand is equal to 1 ($|E_d| = 1$). The percentage change in quantity demanded is equal to the percentage change in price.
• 🤝 Relationship Between MR and Elasticity:
  • When demand is elastic, MR is positive.
  • When demand is inelastic, MR is negative.
  • When demand is unit elastic, MR is zero.

Practice Quiz

1. Which of the following is the correct formula for Marginal Revenue (MR)?
   1. A) $MR = \frac{\Delta Q}{\Delta TR}$
   2. B) $MR = P \times Q$
   3. C) $MR = \frac{\Delta TR}{\Delta Q}$
   4. D) $MR = P - MC$
2. If a firm sells one more unit of output and its total revenue increases from $100 to $115, what is the marginal revenue?
   1. A) $5
   2. B) $15
   3. C) $100
   4. D) $115
3. When demand is elastic, marginal revenue is:
   1. A) Positive
   2. B) Negative
   3. C) Zero
   4. D) Constant
4. When demand is unit elastic, marginal revenue is:
   1. A) Positive
   2. B) Negative
   3. C) Zero
   4. D) Equal to price
5. If the price elasticity of demand for a good is -2.0, what type of demand is it?
   1. A) Inelastic
   2. B) Elastic
   3. C) Unit elastic
   4. D) Perfectly inelastic
6. If a firm lowers its price and total revenue increases, demand is:
   1. A) Inelastic
   2. B) Elastic
   3. C) Unit elastic
   4. D) Perfectly inelastic
7. Which of the following is true when marginal revenue is negative?
   1. A) Demand is elastic
   2. B) Demand is inelastic
   3. C) Demand is unit elastic
   4. D) Total revenue is maximized