3.3 - Revenue

Question 1

What is total revenue?

Answer 1

Total revenue earned from all the output a firm sells

Question 2

How do you calculate total revenue?

Answer 2

Price X Quantity

Question 3

What is average revenue?

Answer 3

Revenue per unit sold

Question 4

How do you calculate average revenue?

Answer 4

Total revenue / Quantity

Question 5

What is marginal revenue?

Answer 5

The extra revenue a firm makes from the sale of an additional unit of output

Question 6

How do you calculate marginal revenue?

Answer 6

Change in total revenue / change in quantity

Question 7

What is the total revenue rule?

Answer 7

• States that in order to maximise revenue, firms should increase the price of products that are inelastic in demand and decrease prices on products that are elastic in demand.

Question 8

Explain why firms should decrease the price of elastic goods …

Answer 8

> When a good/service is price elastic in demand, there is a greater proportional increase in the quantity demanded to a decrease in price
TR is higher once the price has been decreased

Question 9

Explain why firms should increase the price of inelastic goods …

Answer 9

• When a good/service is price inelastic in demand, there is a smaller than proportional decrease in the quantity demanded to an increase in price
  > TR is higher once the price has been increased