Sure, let's go through the steps to calculate the price elasticity of demand given the average revenue and marginal revenue.
1. Define the given values:
- Average Revenue (AR): Rs 2500
- Marginal Revenue (MR): Rs 1500
2. Understand the formula for Price Elasticity of Demand:
The price elasticity of demand (PED) can be calculated using the formula:
[tex]\[
PED = \frac{MR}{AR}
\][/tex]
3. Substitute the given values into the formula:
- MR = 1500
- AR = 2500
By substituting these values into the formula, we get:
[tex]\[
PED = \frac{1500}{2500}
\][/tex]
4. Calculate the result:
Simplifying the fraction:
[tex]\[
PED = 0.6
\][/tex]
So, the price elasticity of demand is 0.6, given that the average revenue is Rs 2500 and the marginal revenue is Rs 1500.
