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Lerners markup and Optimal markup on cost watch

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    -- What is meant by Optimal markup on cost?

    I can only get the formula, but I hardly understand it nor can i explain it.

    Cost markup : (P-C/C) = 1 / (1-E) ---- Where E is the elasticity of demand

    -- Using the relationship between marginal revenue and price elasticity of demand obtain Lerner's markup over marginal cost, (p-c)/p = 1/(price elasticity)

    For this question I understand that when:
    MR = 0, |E| = 1
    MR > 0, |E| > 1
    MR < 0, |E| < 1
    Where E = price elasticity of demand

    But unforunately I can't really understand the question.



    Will definately rep whoever answers these questions as I think they are hard :P
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    That's alright Mr.Bot, need some aid in this question
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    bump
 
 
 
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Updated: November 12, 2008
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