- #1
idempotency
- 2
- 0
Hi all,
The problem asks to prove:
[tex]e_{Q,P} = \frac{AR}{AR-MR}[/tex]
In which AR is average revenue and MR is marginal revenue.
Then verify this for demand equation [tex] p = a-bx[/tex]
I developed several steps:
[tex]
\begin{flalign*}AR = \frac{TR(Q)}{Q} ; MR = \frac{dTR(Q)}{dQ} \\*
\frac{AR}{AR-MR} = 1 - \frac{AR}{MR} = 1 - \frac{TR(Q)}{Q} . \frac{dQ}{dTR(Q)}\end{flalign*}[/tex] (??)
Then I also found that this proof brings me somewhat closer to e(Q,P):
[tex]
\begin{flalign*} Q=a-bP\\*
Thus: ~ TR = (a-bP).P = aP-bP^2 (1)\\*
Taking~the~derivatives:
\frac{\partial TR}{\partial P} = a-2bP (2)\\*
From~(1): P = \frac{a-Q}{b} \\*
Thus~ (a),(b):\\*
\frac{TR}{\partial P} = a+ \frac{a-Q}{b} = 3a-2Q\\*
Elastic~function: E(P) = \frac{\partial Q}{\partial P} . \frac{P}{Q} \\*
= b . \frac{a-Q}{Qb} (from~(b))\\*
We~have: Q(1+E) = Q(1=\frac{Q-a}{Q} = ... = a + b(2-a)\\*
\end{flalign*}[/tex]
I am a bit stuck here - I am attempting to prove that ∂TR/∂P=Q(1+E) is true (which it is I believe and may go from there.
Am I overcomplicating this? Can you give some hints?
Thanks.
Omaron
Note: Apology for the weird indentation - still trying to figure out LaTeX
The problem asks to prove:
[tex]e_{Q,P} = \frac{AR}{AR-MR}[/tex]
In which AR is average revenue and MR is marginal revenue.
Then verify this for demand equation [tex] p = a-bx[/tex]
I developed several steps:
[tex]
\begin{flalign*}AR = \frac{TR(Q)}{Q} ; MR = \frac{dTR(Q)}{dQ} \\*
\frac{AR}{AR-MR} = 1 - \frac{AR}{MR} = 1 - \frac{TR(Q)}{Q} . \frac{dQ}{dTR(Q)}\end{flalign*}[/tex] (??)
Then I also found that this proof brings me somewhat closer to e(Q,P):
[tex]
\begin{flalign*} Q=a-bP\\*
Thus: ~ TR = (a-bP).P = aP-bP^2 (1)\\*
Taking~the~derivatives:
\frac{\partial TR}{\partial P} = a-2bP (2)\\*
From~(1): P = \frac{a-Q}{b} \\*
Thus~ (a),(b):\\*
\frac{TR}{\partial P} = a+ \frac{a-Q}{b} = 3a-2Q\\*
Elastic~function: E(P) = \frac{\partial Q}{\partial P} . \frac{P}{Q} \\*
= b . \frac{a-Q}{Qb} (from~(b))\\*
We~have: Q(1+E) = Q(1=\frac{Q-a}{Q} = ... = a + b(2-a)\\*
\end{flalign*}[/tex]
I am a bit stuck here - I am attempting to prove that ∂TR/∂P=Q(1+E) is true (which it is I believe and may go from there.
Am I overcomplicating this? Can you give some hints?
Thanks.
Omaron
Note: Apology for the weird indentation - still trying to figure out LaTeX