Landsburg Chp 10

Itri, Henry ( (no email) )
Thu, 25 Mar 1999 13:52:59 -0500

I have this "friend" who is having trouble with Landsburg Chapter 10. The
issue is over the quantity at which marginal revenue is zero. From Exhibit
10-1 whatever on page 345, the marginal revenue is clearly zero at a
quantity of 6. But is it possible to argue that the marginal revenue is
zero at a quantity of 5.5?

If you use MR = P x [1 - 1/(absolute value of elasticity)] and set equal to
zero, then the absolute value of elasticity must equal 1. It follows that
the absolute value of [100 x change in Q / Q] / [100 x change in P / P] = 1.
It seems that the only point where this is true is at quantity (and price) =
5.5.

At Q = 6, isn't elasticity = -5/6?

Is anyone willing to set my "friend" straight?

Hank Itri
Harleysville Insurance Companies
Corporate Actuarial Services, B2 West
215.256.5840
<mailto:hitri@harleysvillegroup.com>