3.2.1 Revenue Flashcards
Formula for total revenue
Total Revenue = Number of Units Sold X Cost Per Unit
Formula for average revenue
Average revenue = Total revenue / quantity of units
Formula for marginal revenue
Marginal Revenue= Change in Total Revenue/ Change in Total Quantity
Marginal Revenue = (Current Revenue - Initial Revenue) / (Current Product Quantity - Initial Product Quantity)
What is price elasticity of demand?
describes how changes in the price for goods and the demand for those same goods relate. As those two variables interact, they can have an impact on a firm’s total revenue. … Therefore, as the price or the quantity sold changes, those changes have a direct impact on revenue
Relation between price elasticity of demand and total revenue?
Price and total revenue have a negative relationship when demand is elastic (price elasticity > 1), which means that increases in price will lead to decreases in total revenue. Price changes will not affect total revenue when the demand is unit elastic (price elasticity = 1).
Relation between price elasticity of demand and average revenue?
If price elasticity of demand at a point on the average revenue curve equals 2, then the relevant point on the average revenue curve DD’ in Figure 21.7 is R corresponding to output ON such that RD’ = 2RD. This is because elasticity at point R = RD’/RD = 2.
Relation between price elasticity of demand and marginal revenue?
Marginal revenue is related to the price elasticity of demand — the responsiveness of quantity demanded to a change in price. When marginal revenue is positive, demand is elastic; and when marginal revenue is negative, demand is inelastic.
