CA Foundation P4 · Chapter 4 · Question 3 of 15
If average revenue is Rs. 60 and price elasticity of demand is 3, marginal revenue is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 40
Explanation
MR = AR x (1 - 1/e) = 60 x (1 - 1/3) = 60 x 2/3 = Rs. 40. Rs. 20 results from computing AR/e (60/3) and stopping there; Rs. 90 applies the inverse relation AR x e/(e - 1) = 60 x 3/2, which gives AR from MR; Rs. 180 simply multiplies AR by e.
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