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Question
If the marginal revenue Rm = 40 and elasticity of demand η is 5, then the average revenue RA will be ______.
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Solution
If the marginal revenue Rm = 40 and elasticity of demand η is 5, then the average revenue RA will be 50.
Explanation:
Given:
Marginal revenue Rm = 40 and
elasticity of demand (η) = 5
Rm = RA `(1 - 1/η)`
∴ 40 = `R_A (1 - 1/5)`
∴ RA = `R_m/(1 - 1/5)`
∴ RA = `40/(1 - 1/5)`
∴ RA = `40/(4/5)`
∴ RA = `40 xx 5/4`
∴ RA = 50
∴ Average revenue (RA) = 50
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