3.3.1: Revenue

Question 1

What is total revenue?

Answer 1

Price X Quantity.
TR = P X Q.

Question 2

What is average revenue?

Answer 2

Total Revenue / Output.
AR = TR / Q.

OR

Demand/Price.

Question 3

What is marginal revenue?

Answer 3

The extra revenue gained when producing one extra unit of a good (Change in Total Revenue / Change in Output).
MR = ΔTR / ΔQ.

Question 4

What is the relationship with firms and price at perfect competition?

Answer 4

Firms are price TAKERS - they have NO price setting power. Therefore, the price received by the firm for each good is constant.

Question 5

What is the relationship with firms and price at imperfect competition?

Answer 5

Firms are price MAKERS - they have SOME price setting power.

Question 6

How does elasticity of the curve link with marginal revenue (MR)?
-MR = positive.
-MR = 0.
-MR = negative.

Answer 6

-MR = positive: TR grows at a decreasing rate (elastic).
-MR = 0: TR is maximised (unitary elastic).
-MR = negative: TR decreases (inelastic).

Question 7

Average Revenue is the same as…

Answer 7

… Demand.