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To compute the inverse demand function simply solve for P in the [[demand curve|demand function]]. For example, if the demand function has the form Q = 10 - 2P then the inverse demand function would be P = 5 - Q/2.
The inverse demand function can be used to derive the total and marginal revenue functions. Total revenue equals price, P, times quantity, Q, or TR = PQ. Multiply the inverse demand function by Q to derive the total revenue function: TR = (5 - 0.5Q) x Q = 5Q - 0.5Q². The marginal revenue function is the first derivative of the total revenue function or MR = 5 - Q. Note that the MR function has the same y-intercept as the inverse demand function, the x-interept of the MR function is one-half the value of the inverse demand function and the slope of the MR function is twice that of the inverse demand function.
== References ==▼
▲== References ==
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