3.3.1 Revenue

Question 1

Spec Points

Answer 1

a) Formulae to calculate and understand the relationship
between:
o total revenue
o average revenue
o marginal revenue
b) Price elasticity of demand and its relationship to revenue
concepts (calculation required)

Question 1

What is the formula for total revenue

Answer 1

TR = P x Q`

Question 2

What is the formula for average revenue

Answer 2

AR = TR / Q

Question 3

What is the formula for marginal revenue

Answer 3

MR = Change in TR / Change in Q

Question 4

What does marginal revenue mean/ ( marginal)

Answer 4

• The additional revenue gained from selling one more unit

Question 5

What are some characteristics of perfectly competitive markets

Answer 5

1 - Many buyers and sellers
2 - They all sell homogenous goods
3 - Firms are price takers
4 - No/ low barriers to entry

Question 6

What are some characteristics of imperfect competition

Answer 6

1 - Few buyers and sellers
2 - Differentiated goods
3 - Firms are price makers
4 - High barriers to entry / exit
5 - Imperfect market information