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3.3 Revenues, Costs + Profits > 3.3.1 Revenue > Flashcards

3.3.1 Revenue Flashcards

1
Q

What is total revenue?

A

The total output of money received from any given level of output over a given period of time

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2
Q

What is average revenue?

A
  • average receipt per unit sold
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3
Q

What is marginal revenue?

A

The receipts from selling an additional unit of output

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4
Q

How do you calculate total revenue?

A

Quantity sold x price

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5
Q

How do you calculate average revenue?

A

total revenue/ quantity sold

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6
Q

How do you calculate marginal revenue?

A

Change in total revenue/ change in output

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7
Q

What is PED when prices are constant?

A
  • AR=MR curve horizontal
  • perfectly elastic demand
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8
Q

What happens to PED if price falls as sales rise?

A
  • price elastic if TR increases as prices fall
  • price inelastic if TR falls
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9
Q

How does marginal revenue relate to PED?

A
  • PED is elastic as long as MR is positive
  • PED is inelastic if MR is negative
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10
Q

When is PED unity or 1?

A
  • TR is maximised
  • MR is zero
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11
Q

What is a price taker?

A

firms that have no market power and are unable to influence price - they take the ‘going price’ offered by the market

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12
Q

What firm is present in perfect competition?

A

Price taker

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13
Q

Observations from a price taker model?

A
  • firm is a price taker at P1
  • every unit of output is sold at the same price
  • a higher price would decrease sales to zero
  • a lower price would result in all sellers lowering their price
  • MR=AR=demand —> perfectly elastic
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14
Q

What is TR on a price taker?

A
  • perfect competition = constant rate
  • diagonal line from 0
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15
Q

What is a price maker?

A

A firm with market power that is able to manipulate prices in order to change demand - monopolistic, oligopoly + monopoly

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16
Q

Observations from price maker model?

A
  • in order to sell an additional unit of output, the price (AR) must be lowered
  • both AR + MR fall with additional units of sale
  • when AR, MR falls by twice as much = gradient is twice as steep
  • when MR=0 —> PED = 1, unitary elasticity
17
Q

What is the TR of a price maker?

A

TR is maximised when MR=0

18
Q

What is the total revenue rule?

A
  • 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
19
Q

What happens when a good/service is price elastic in demand?

A
  • there is a greater proportional increase in quantity demanded in response to a decrease in price
  • TR is higher once the price has been decreased
  • (P2 xQ2) > (P1xQ1)
20
Q

What happens when a good/service is price inelastic in demand?

A
  • 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
  • (P2xQ2)>(P1xQ1)

3.3 Revenues, Costs + Profits (4 decks)

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