Answer: 3rd option
Elasticity = E
Price = P
Total revenue = TR
Marginal revenue = MR
Given,
Q = 8 – 0.2P ………… (1)
By rearranging,
0.2P = 8 – Q
Or, P = 8/0.2 – Q/0.2
Or, P = 40 – 5Q
Hence,
TR = P × Q = 40Q – 5Q^2
Now,
MR = Derivatives of TR
= (d/dQ) [40Q – 5Q^2]
= 40 – 10Q
Therefore, the elasticity formula as below,
MR = P (1 + 1/E))
40 – 10Q = P (1 + 1(-1)) [price elasticity always must be in negative]
40 – 10Q = P (1 – 1)
40 – 10Q = P × 0
40 – 10Q = 0
40 = 10Q
Q = 4
Now, by putting this value in equation (1),
Q = 8 – 0.2P ………… (1)
4 = 8 – 0.2P
Or, 4 – 8 = 0.2P
Or, - 4 = - 0.2P
Or, 0.2P = 4
Or, P = 4/0.2
= 20
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