3.3.1 - Revenue Flashcards
1
Q
What is Revenue?
A
the same as the turnover of the firm
2
Q
(Total) Revenue equation
A
R = P×Q
3
Q
Average revenue equation (AR)
A
AR = TR÷Q
4
Q
Marginal revenue equation
A
MR = ∆TR ÷ ∆Q
5
Q
Positive MR
A
decrease in total revenue (TR)
6
Q
Negative MR
A
decrease in Total Revenue (TR)
7
Q
Total Revenue maximisation
A
TR is MAX when PED=1 (MR=0)
8
Q
“price maker” firms
A
- MR decreases as Q increases (firm has to decrease price to increase sales)
- MR decreases (twice as steep as AR decreases)
- MR < AR, as firm has to cut prices to sell more
- TR increases then decreases as Q increases
- TR maximised when MR=0
9
Q
“price taker” firm
A
price elastic - D=AR=MR -> infinite PED
