3.3 - Revenues Flashcards
What are the 2 forms of revenue generating firm?
Price Taker
Price Maker
What are the characteristics of a Price Taking Firm?
No control + influence on market value
Must accept price
Perfectly elastic demand curve
AR=MR
What are the characteristics of a Price Making Firm?
Reduces price incrementally over time
Compliments sales
TR only rises to certain point
How does PED relate to revenue?
Elasticity enables firms to manipulate sales + total revenue
How does a price elastic demand affect revenue?
Supplier stands to gain revenue by cutting prices
Raising price level causes large reduction in sales
Revenue lost
How does a price inelastic demand affect revenue?
Supplier stands to gain revenue by raising prices
Raising prices causes minimal contraction in demand
Lowering prices results in lost revenue
How does PED relate to the AR curve?
Demand elastic before MR=0
Demand inelastic after MR=0
