The relationship between Price elasticity of demand and Marginal Revenue
Can be shown to be: MR= P ( 1- (1/e))
There are two types of customers that come to the Barnegat Fish Company to have their signature crabcakes: An affluent group with a price elasticity of demand for crabcakes of e = ?2; and a less wealthy type with a price elasticity of demand for crabcakes of e = ?5. The restaurant wants to introduce a coupon to encourage more people to visit their restaurant. Thus every buyer pays the posted price of $P per crabcake but those who tender the coupon get a discount of $X off the posted price. If the Marginal Cost of a crabcake is $2.00, what is the price of the crabcakeand what is the value of the coupon?(Set MR=MC).