Which one of the following gives the correct relationship between MR, AR and price elasticity?
Which one of the following gives the correct relationship between MR, AR and price elasticity?
The correct option is B MR=AR(e−1e)
Marginal revenue refers to the change in revenue or additional revenue which a firm earns on selling a unit more of its output. It is calculated by dividing the change in total revenue by change in total quantity of commodity sold.
Marginal revenue = Change in total revenue/ Change in quantity of commodity sold.
Average revenue is the revenue per unit of output sold in the market.
Average Revenue = total revenue/total quantity
Price elasticity of demand is the responsiveness of demand of a commodity towards change in its own price. It is denoted by e.
The relationship between these three is:
MR = AR {(e-1)/e} which denotes that MR is directly related to AR but change twice the proportion of AR whereas MR is inversely related to elasticity of demand.
Marginal revenue refers to the change in revenue or additional revenue which a firm earns on selling a unit more of its output. It is calculated by dividing the change in total revenue by change in total quantity of commodity sold.
Marginal revenue = Change in total revenue/ Change in quantity of commodity sold.
Average revenue is the revenue per unit of output sold in the market.
Average Revenue = total revenue/total quantity
Price elasticity of demand is the responsiveness of demand of a commodity towards change in its own price. It is denoted by e.
The relationship between these three is:
MR = AR {(e-1)/e} which denotes that MR is directly related to AR but change twice the proportion of AR whereas MR is inversely related to elasticity of demand.
