Critique of a Marginal Revenue Calculation
A student is attempting to find the marginal revenue (MR) for a firm. They start with the total revenue function, R(Q) = P × Q, where P is the price and Q is the quantity. The firm faces a typical market where the price it can charge depends on the quantity it sells, as described by a downward-sloping inverse demand function, P = f(Q). The student incorrectly concludes that the marginal revenue is simply equal to the price (MR = P). Explain the fundamental error in the student's reasoning. Specifically, why is the use of the product rule for differentiation necessary in this scenario?
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Critique of a Marginal Revenue Calculation
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