3.3.1 - Revenue

Question 1

What Is Revenue?

Answer 1

Money made from the sale of goods and services.

Question 2

What Is Total Revenue (TR) & Its Formula?
(2 Points)

Answer 2

~ Is the total value of all sales a firm incurs.

~ TR = Price x Quantity.

Question 3

What Is Average Revenue (AR) & Its Formula?
(4 Points)

Answer 3

~ Overall revenue per unit.

~ D = AR

~ AR is just price.

~ Total Revenue / Quantity.

Question 4

What Is Marginal Revenue (MR) & Its Formula?

Answer 4

~ Is the extra revenue received from the sale of an additional unit of output.

~ ∆ In TR / ∆ In Q.

Question 5

What Is Perfect Competition?

Answer 5

Market structure in which individual firms have no market power due to the amount of competition and are unable to influence the price.

Question 6

What Are The Characteristics Of A Perfectly Competitive Market?
(5 Points)

Answer 6

~ Infinite buyers and sellers.

~ Homogenous goods, identical goods.

~ Firms are price takers, they cannot set the price they must take it from the market.

~ No barriers to entry or exit, there is free movement in and out of the market.

~ Perfect information, of market conditions.

Question 7

What Is Imperfect Competition?
(2 Points)

Answer 7

~ Market structure where firms do have some market power and can influence prices.

~ E.g. Monopolistic, oligopoly and monopoly.

Question 8

What Are The Characteristics Of A Imperfectly Competitive Market?
(5 Points)

Answer 8

~ Few buyers and sellers.

~ Sell differentiated goods.

~ Firms are price makers, they set their own prices.

~ High barriers to entry and exist.

~ Imperfect information, of market conditions.

Question 9

What Does The TR Rule State?

Answer 9

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.

Question 10

Why Is MR 2x As Steep As AR?

Answer 10

When a firm decreases its price, it drops the price on all units sold.

Question 11

In Perfect Competition Why Does MR=AR=D?
(2 Points)

Answer 11

~ Because the firms have no price setting power, the price received by the firm for the good is constant.

~ The demand curve is horizontal.

Question 12

In Perfect Competition Why Does The TR Curve Slope Upwards?

Answer 12

Because prices are constant and so the more goods that are sold, the higher the revenue made.

Question 13

When MR Is Positive What Elasticity Is The Demand Curve?

Answer 13

Elastic.

Question 14

When MR Is Negative What Elasticity Is The Demand Curve?

Answer 14

Inelastic.

Question 15

When Is TR Maximised?

Answer 15

When MR=0 and PED=1.

Question 16

What Kind Of Prices Are Consumers Elastic At?

Answer 16

Higher prices.

Question 17

What Kind Of Prices Are Consumers Inelastic At?

Answer 17

Lower prices.

Question 18

When Demand Is Price Elastic, What Happens When Price Increases?

Answer 18

TR decreases.

Question 19

When Demand Is Price Elastic, What Happens When Price Decreases?

Answer 19

TR increases.

Question 20

When Demand Is Price Inelastic, What Happens When Price Increases?

Answer 20

TR increases.

Question 21

When Demand Is Price Inelastic, What Happens When Price Decreases?

Answer 21

TR decreases.