3.3.1 Revenue Flashcards
what is the formula for total revenue?
total revenue= price ✖ selling price
how much a firm recieves in total from it’s sales
what is average revenue?
what a business receives on average from each sale
* AR = Total revenue ÷ quantity
* AR = Price
what is the average revenue curve equal to?
show diagram
the demand curve
line must always be touching y axis
what is marginal revenue?
the additional revenue per 1 extra unit sold
new revenue - old revenue
what happens to total revenue when
1. MR is positive
2. MR = 0
3. MR is negative
- TR increasing
- TR stays the same
- TR decreasing
MR is the gradinet of TR
what is the average revenue when the price is £10?
£10 because AR= P
what is the marginal revenue formula?
Δ TR ÷ Δ Q
what does total revenue look like on a graph?
rectangle
what are the 3 key features of the marginal revenue curve?
- starts at the same point as AR
- meets the quanitity axis halfway
- goes negative but stops at the same quantity as AR
describe the marginal revenue curve
as the price decraeses and quantity increases the MR decreases from positive to negative
draw the total revenue curve
how is total revenue effected by elastic demand?
- as price decreases: total revenue increases as QD increases by a larger %
- as price increases: total revenue decreases and QD decreases by a larger %
what is the price elasticity of the demand/AR curve?
why does the PED of demand change at different prices?
PED includes percentage change in price
* for higher prices the same perctage change (10% decrease in price of £1000) = new price of £900 which will be much more attractive to conumers than a (10% decrease in £10)= new price of £9 which will not get much response from consumers
* so at a higher price, PED is elastic
* lower price, PED is inelastic
At what point is total revenue maximimsed?
when marginal revenue = 0
at half of quantity
