Thanks for the question, was it MR=P(1-(1/epsilon_p))? If so, I take it that they are just defining price elasticity of demand (epsilon_p) as the absolute value of dq/dP*P/q, which removes the negative on the elasticity (dQ/dP is negative because of the law of demand). The negative in the formulae would then essentially be putting it back in. Defining it this way is a common(ish) thing to do. Although everything comes out the same, specific courses differ in their treatment of this, you should ask your teacher just in case they require it a specific way. Does that help?
@@econhelp_official thanks for your reply. So if we consider the absolute value, then it should remain positive, how come the negative sign appears? Also, the two equations (one with +, other with -) are not the same & would yield different results for marginal revenue..
So if we leave the formula with the positive, and we take elasticity to equal dQ/dP*P/Q (and not the absolute value of dQ/dP*P/Q) the negative will appear because dQ/dP*P/Q will be negative (because dQ/dP is negative). This is due to the law of demand which says that there is a negative relationship between the price and quantity demanded (as price increases, quantity demanded decreases and visa versa). dQ can be read "small change in Q" and dP as "small change in P". The fraction will then be negative because one movement will be negative which renders the whole term negative (e.g. if Q increases, price must decrease and visa versa). Another way to approach this is to note that the the law of demand tells us that the slope of the demand curve will be negative. The slope is equal to rise / run which is [the change in P]/[change in Q] which is dP/dQ. If dP/dQ is negative then so must its inverse, dQ/dP. We should get the same result whichever method we use. Say our elasticity of demand is equal to -.5. Using the formula with the positive, MR = P(1+(1/-.5)) = P(1+(-2))=P(1-2)=P(-1). If we use the formula with the negative then I take it that we just use the absolute value, so epsilon_p=|-.5|=.5. MR = P(1-(1/0.5)) = P(1-2)=P(-1). Does that help? Haha it's really long answer, I hope it helps :)
Hi! Do you understand how we got to P(dP/dQ*P/Q)+P (It's at about 5:04)? If you got that far, from this point we just need to recognise that dP/dQ*P/Q = 1/e_p, and we just sub in. At the heart of the issue is that 1/e_p (dP/dQ*P/Q) is the inverse of e_p (dQ/dP*Q/P), (technically the multiplicative inverse). To see why, note that to find the multiplicative inverse of any number, you can just put that number as the denominator of the fraction with 1 on the numerator. As an example, the inverse of 4 = 1/4. Technically, what makes these numbers multiplicative inverses is that if we multiply them together, they equal 1 (in our example 4x1/4=1). But note that 4 = 4/1, so hopefully you can see that finding the inverse really just amounts to swapping the numerator and denominator around. Thus dP/dQ*P/Q is the inverse of e_p (which is, again, dQ/dP*Q/P) [you can check, I've swapped the numerator and denominators around]. This means that dP/dQ*P/Q is equal to 1/e_p and that's why we substitute it in as we have. Does that help?
Good question! Price Elasticity of Demand in Perfect Competition is perfectly elastic... so equal to negative infinity. Now 1/negative infinity is equal to 0 at the limit (you can think about it like this, as our denominator gets larger and larger the value of the fraction gets smaller and smaller 1/4>1/8>1/100). So we can take 1/negative infinity to be 0, and P=MR. Does that help?
I'm an ACCA student, and in F5: performance management we have to study this topic, I can't begin to explain what they've done to it in their syllabus, they outright refuse to use the brain... at all, and I'm not saying this out of anger or disappointment, it's just the way things are. E.g they refused to teach us Marginal Revenue bcz, and I quote "Studying MR requires mathematical derivatives, many of the students haven't studied it so it's not part of your ACCA syllabus, we'll just give you a formula MR=a-2bq, and elasticity is constant, wtf are derivatives? and oh, this "model" cannot be used in the practical world bcz it uses the high-low method, it assumes a linear relation btw demand and price" Then how about you don't use the high-low method? HL method is the biggest nonsense ever, stop shoving it down our throats. ever heard of regression? there are so many types of it, one of them might be appropriate? or how about you use some statistics and probability if appropriate? how about you don't assume a linear relationship btw Q and P? How about you stop doing the stupid things you're doing? Maybe the model would work if you would at least try to use your brain. WTF man???? I studied calc 1 in high school when I was 17, I studied multivariate calc and (some) differential equations on my own, calculus is the easiest thing out there and they refuse to do anything that requires them to use their brain, they do this all the time, they do this to everything, consider the problem of limiting factors, now imagine the most stupid way of approaching this problem, well ACCA have you covered, they teach Marginal and Throughput accounting, that only deals with one limiting factor, if there are two products and many limiting factors, there's linear programming, well, what if there are many products and many limiting factors? you may ask: "Well then go duck yourself, we can't teach you anything that's of value and requires you to use your brain". And I can't even begin to tell you what they taught us in the learning curve, this is the most stupid subject ever. Studying it just boils my blood. If someone is reading this, just don't go into accounting, and don't do certifications, they're not a good education. Go to a proper university and study a stem degree. A BSCS from an unknown university >>>>>>>>>>>>>> ACCA+ CFA+CA+MBA+ work experience from biggest A&F companies on earth.
Thanks thanks thanks a lot. Your videos have been helping me a lot. I binge watched them today!
That's so great to hear! I'm so glad the videos have been helpful :) Good luck with your study!!
Thaaank you ma'am, it really helps a lot 🥺🔥
Saving my exam grade with this one, thanks!
Aw I'm so glad, hope your exam went well!! Thanks for the comment!
Hey, really helpful! Just a brief remark: It is actually the product rule one need to apply to get to (dP/dQ)*Q + (dQ/dQ)*P, not the chain rule
Indeed! I made a mistake, thanks for pointing that out!
Wow....I really understand this tutorial. Thank you
Well done! Keep it up 👍
I saw the formula written with a negative instead of a positive sign ie 1-Ep. Is this also correct?
Thanks for the question, was it MR=P(1-(1/epsilon_p))? If so, I take it that they are just defining price elasticity of demand (epsilon_p) as the absolute value of dq/dP*P/q, which removes the negative on the elasticity (dQ/dP is negative because of the law of demand). The negative in the formulae would then essentially be putting it back in. Defining it this way is a common(ish) thing to do. Although everything comes out the same, specific courses differ in their treatment of this, you should ask your teacher just in case they require it a specific way. Does that help?
@@econhelp_official thanks for your reply. So if we consider the absolute value, then it should remain positive, how come the negative sign appears? Also, the two equations (one with +, other with -) are not the same & would yield different results for marginal revenue..
So if we leave the formula with the positive, and we take elasticity to equal dQ/dP*P/Q (and not the absolute value of dQ/dP*P/Q) the negative will appear because dQ/dP*P/Q will be negative (because dQ/dP is negative). This is due to the law of demand which says that there is a negative relationship between the price and quantity demanded (as price increases, quantity demanded decreases and visa versa). dQ can be read "small change in Q" and dP as "small change in P". The fraction will then be negative because one movement will be negative which renders the whole term negative (e.g. if Q increases, price must decrease and visa versa). Another way to approach this is to note that the the law of demand tells us that the slope of the demand curve will be negative. The slope is equal to rise / run which is [the change in P]/[change in Q] which is dP/dQ. If dP/dQ is negative then so must its inverse, dQ/dP. We should get the same result whichever method we use. Say our elasticity of demand is equal to -.5. Using the formula with the positive, MR = P(1+(1/-.5)) = P(1+(-2))=P(1-2)=P(-1). If we use the formula with the negative then I take it that we just use the absolute value, so epsilon_p=|-.5|=.5. MR = P(1-(1/0.5)) = P(1-2)=P(-1). Does that help? Haha it's really long answer, I hope it helps :)
@@econhelp_official Great explanation! Thank you so much for taking the time to reply. Really appreciate it.
@@kmh6578Thaaank you for asking those questions
please why is it 1 divided by price elasticity
Hi! Do you understand how we got to P(dP/dQ*P/Q)+P (It's at about 5:04)? If you got that far, from this point we just need to recognise that dP/dQ*P/Q = 1/e_p, and we just sub in. At the heart of the issue is that 1/e_p (dP/dQ*P/Q) is the inverse of e_p (dQ/dP*Q/P), (technically the multiplicative inverse). To see why, note that to find the multiplicative inverse of any number, you can just put that number as the denominator of the fraction with 1 on the numerator. As an example, the inverse of 4 = 1/4. Technically, what makes these numbers multiplicative inverses is that if we multiply them together, they equal 1 (in our example 4x1/4=1). But note that 4 = 4/1, so hopefully you can see that finding the inverse really just amounts to swapping the numerator and denominator around. Thus dP/dQ*P/Q is the inverse of e_p (which is, again, dQ/dP*Q/P) [you can check, I've swapped the numerator and denominators around]. This means that dP/dQ*P/Q is equal to 1/e_p and that's why we substitute it in as we have. Does that help?
How does the previous relationship become in the case of perfect competition and why? And thank u so much 🙏🏼❤
Good question! Price Elasticity of Demand in Perfect Competition is perfectly elastic... so equal to negative infinity. Now 1/negative infinity is equal to 0 at the limit (you can think about it like this, as our denominator gets larger and larger the value of the fraction gets smaller and smaller 1/4>1/8>1/100). So we can take 1/negative infinity to be 0, and P=MR. Does that help?
@@econhelp_official yeah yeah thank u so much 🙏🏼❤️
I'm an ACCA student, and in F5: performance management we have to study this topic, I can't begin to explain what they've done to it in their syllabus, they outright refuse to use the brain... at all, and I'm not saying this out of anger or disappointment, it's just the way things are. E.g they refused to teach us Marginal Revenue bcz, and I quote
"Studying MR requires mathematical derivatives, many of the students haven't studied it so it's not part of your ACCA syllabus, we'll just give you a formula MR=a-2bq, and elasticity is constant, wtf are derivatives? and oh, this "model" cannot be used in the practical world bcz it uses the high-low method, it assumes a linear relation btw demand and price" Then how about you don't use the high-low method? HL method is the biggest nonsense ever, stop shoving it down our throats. ever heard of regression? there are so many types of it, one of them might be appropriate? or how about you use some statistics and probability if appropriate? how about you don't assume a linear relationship btw Q and P? How about you stop doing the stupid things you're doing? Maybe the model would work if you would at least try to use your brain.
WTF man???? I studied calc 1 in high school when I was 17, I studied multivariate calc and (some) differential equations on my own, calculus is the easiest thing out there and they refuse to do anything that requires them to use their brain, they do this all the time, they do this to everything, consider the problem of limiting factors, now imagine the most stupid way of approaching this problem, well ACCA have you covered, they teach Marginal and Throughput accounting, that only deals with one limiting factor, if there are two products and many limiting factors, there's linear programming, well, what if there are many products and many limiting factors? you may ask: "Well then go duck yourself, we can't teach you anything that's of value and requires you to use your brain". And I can't even begin to tell you what they taught us in the learning curve, this is the most stupid subject ever. Studying it just boils my blood.
If someone is reading this, just don't go into accounting, and don't do certifications, they're not a good education. Go to a proper university and study a stem degree. A BSCS from an unknown university >>>>>>>>>>>>>> ACCA+ CFA+CA+MBA+ work experience from biggest A&F companies on earth.
I see this quite a bit. Follow your dreams! 🤗 You still have time!! 🤗