CA CPT Exam > CA CPT Questions > Relationship between AR, MR and Price elastic...
Start Learning for Free
Relationship between AR, MR and Price elasticity of demand is
- a)MR = AR + [e -1/e]
- b)MR = AR x [e -1/e]
- c)AR = MR x [e -1/e]
- d)MR = AR x [e/e -1]
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
Relationship between AR, MR and Price elasticity of demand isa)MR = AR...
Relationship between AR, MR and Price Elasticity of Demand
The relationship between AR (Average Revenue), MR (Marginal Revenue) and Price Elasticity of Demand is important to understand for businesses to make effective pricing decisions. Let's understand this relationship in detail.
1. Average Revenue (AR)
- AR is the revenue generated per unit of output sold.
- It is calculated by dividing total revenue by the quantity sold.
- AR = Total Revenue / Quantity Sold
2. Marginal Revenue (MR)
- MR is the additional revenue generated by selling one more unit of output.
- It is calculated by subtracting the revenue earned from selling one less unit from the revenue earned from selling one more unit.
- MR = Change in Total Revenue / Change in Quantity Sold
3. Price Elasticity of Demand (e)
- e measures the responsiveness of quantity demanded to a change in price.
- It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
- e = (% Change in Quantity Demanded) / (% Change in Price)
Relationship between AR, MR and Price Elasticity of Demand
The relationship between AR, MR and Price Elasticity of Demand can be explained using the following formula:
MR = AR x [e -1/e]
- This formula shows that MR is equal to AR multiplied by a factor of [e -1/e].
- When the value of e is greater than 1, the term [e -1/e] is positive, and thus MR is greater than AR.
- When the value of e is equal to 1 (unitary elasticity), the term [e -1/e] is zero, and thus MR is equal to AR.
- When the value of e is less than 1, the term [e -1/e] is negative, and thus MR is less than AR.
Therefore, businesses can use this relationship to determine the optimal price for their product by considering the price elasticity of demand. If the demand for the product is elastic, i.e., e > 1, then the business should lower the price to increase revenue. If the demand is inelastic, i.e., e < 1,="" then="" the="" business="" can="" increase="" the="" price="" to="" increase="" revenue.="" 1,="" then="" the="" business="" can="" increase="" the="" price="" to="" increase="" />
The relationship between AR (Average Revenue), MR (Marginal Revenue) and Price Elasticity of Demand is important to understand for businesses to make effective pricing decisions. Let's understand this relationship in detail.
1. Average Revenue (AR)
- AR is the revenue generated per unit of output sold.
- It is calculated by dividing total revenue by the quantity sold.
- AR = Total Revenue / Quantity Sold
2. Marginal Revenue (MR)
- MR is the additional revenue generated by selling one more unit of output.
- It is calculated by subtracting the revenue earned from selling one less unit from the revenue earned from selling one more unit.
- MR = Change in Total Revenue / Change in Quantity Sold
3. Price Elasticity of Demand (e)
- e measures the responsiveness of quantity demanded to a change in price.
- It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
- e = (% Change in Quantity Demanded) / (% Change in Price)
Relationship between AR, MR and Price Elasticity of Demand
The relationship between AR, MR and Price Elasticity of Demand can be explained using the following formula:
MR = AR x [e -1/e]
- This formula shows that MR is equal to AR multiplied by a factor of [e -1/e].
- When the value of e is greater than 1, the term [e -1/e] is positive, and thus MR is greater than AR.
- When the value of e is equal to 1 (unitary elasticity), the term [e -1/e] is zero, and thus MR is equal to AR.
- When the value of e is less than 1, the term [e -1/e] is negative, and thus MR is less than AR.
Therefore, businesses can use this relationship to determine the optimal price for their product by considering the price elasticity of demand. If the demand for the product is elastic, i.e., e > 1, then the business should lower the price to increase revenue. If the demand is inelastic, i.e., e < 1,="" then="" the="" business="" can="" increase="" the="" price="" to="" increase="" revenue.="" 1,="" then="" the="" business="" can="" increase="" the="" price="" to="" increase="" />
Free Test
FREE
| Start Free Test |
Community Answer
Relationship between AR, MR and Price elasticity of demand isa)MR = AR...
It is a formula
|
Explore Courses for CA CPT exam
|
|
Similar CA CPT Doubts
Top Courses for CA CPTView all
Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer?
Question Description
Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer? for CA CPT 2025 is part of CA CPT preparation. The Question and answers have been prepared according to the CA CPT exam syllabus. Information about Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA CPT 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer?.
Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer? for CA CPT 2025 is part of CA CPT preparation. The Question and answers have been prepared according to the CA CPT exam syllabus. Information about Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA CPT 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer?.
Solutions for Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for CA CPT.
Download more important topics, notes, lectures and mock test series for CA CPT Exam by signing up for free.
Here you can find the meaning of Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of
Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer?, a detailed solution for Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer? has been provided alongside types of Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice Relationship between AR, MR and Price elasticity of demand isa)MR = AR + [e -1/e] b)MR = AR x [e -1/e]c)AR = MR x [e -1/e] d)MR = AR x [e/e -1]Correct answer is option 'B'. Can you explain this answer? tests, examples and also practice CA CPT tests.
|
|
Explore Courses for CA CPT exam
|
|
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup