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B MR=AR(e−1e) C AR=MR−e D MR=ARe−1
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Solution
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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.
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