In the chapter, we noted that the marginal revenue a seller receives can be expressed as
MR = P + (ΔP/ΔQ) Å~ Q.
a. Using this formula as a starting point, show that marginal revenue can be expressed as MR = P(1 + 1/ E D ), where E D is the price elasticity of demand.
b. Using your knowledge about the price elasticity of demand, explain why the marginal revenue a firm with market power receives must always be less than the price.
c. Using your knowledge of the price elasticity of demand, explain why the marginal revenue a perfectly competitive firm receives must be equal to the price.