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# Lerners markup and Optimal markup on cost watch

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1. -- 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
2. That's alright Mr.Bot, need some aid in this question
3. bump

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Updated: November 12, 2008
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