Consumption- Dead and supply Marginal Revenue Curve The first graph shows linear demand P=1-X. The marginal re curve falls at twice the rate Mr=1-2X X The second graph shows the case of constant elasticity. The demand curve which has constant elasticity n is given MR=P(1-1/m) Denand and Supply Market Equilibrium Putting supply and demand together yields the familiar equilibrium diagram. The second graph shows a"perfectly inelastic"supply curve. the third graph shows a"perfectly elastic"one. Price is solely determined by demand in the first case and solely by supply in the second.Consumption — Demand and Supply 7 Marginal Revenue Curves • The first graph shows linear demand P = 1 − X. The marginal revenue curve falls at twice the rate MR = 1 − 2X. . ....................................................................................................................................... . ...................................................................................................................................... ................................................................................................................................................................................................................................................................................ . ................................................................................................................................................................................................................................................................................ 0 P X 0 P X P(X) MR P(X) MR • The second graph shows the case of constant elasticity. The demand curve which has constant elasticity η is given by X = aPη where a is a constant. So marginal revenue is MR = P(1 − 1/|η|). Consumption — Demand and Supply 8 Market Equilibrium • Putting supply and demand together yields the familiar equilibrium diagram. ................................................................................................................................................................................................................................................................................ .................................................................................................................................................................................................................................................................................. .................................................................................................................................................................................................................................................................................. . . . . . .................................................................................................................................................................................................................................................... 0 P X 0 P X 0 P X D S D S D P S ∗ P ∗ P ∗ X∗ X∗ X∗ . . . . . . ............. ............. ............. ............. ............. ........... . . . . . . ............. ............. ............. ............. ............. ........... • The second graph shows a “perfectly inelastic” supply curve, the third graph shows a “perfectly elastic” one. • Price is solely determined by demand in the first case and solely by supply in the second