3.3.1 - Revenue

Question 1

What Is Revenue?

Answer 1

Money made from sales.

Question 2

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

Answer 2

~ The total amount of money coming into the business through the sale of goods and services.

~ Price x Quantity.

Question 3

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

Answer 3

~ Overall revenue per unit.

~ Price and demand.

~ TR / Q.

Question 4

What Is Marginal Revenue (MR) & Its Formula?
(2 Points)

Answer 4

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

~ ∆TR / ∆Q.

Question 5

What Determine The Revenue Curve?

Answer 5

Level of competition.

Question 6

What Are The 2 Groups Of Competition?

Answer 6

~ Perfect competition.

~ Imperfect competition.

Question 7

What Is Perfect Competition?

Answer 7

Individual firms have no market power due to the amount of competition.

Question 8

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

Answer 8

~ Many buyers and sellers.

~ Homogenous goods sold, identical goods and services.

~ Firms are price takers, they have no ability to set their own prices.

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

~ Perfect information of market conditions.

Question 9

How Can The Relationship Between Revenues Be Shown Numerically In Perfect Competition?
(2 Points)

Answer 9

~ AR and MR are constant.

~ TR increases by 1.

Question 10

How Can The Relationship Between Revenues Be Illustrated In Perfect Competition?
(2 Points)

Answer 10

~ AR and MR = Demand, are constant over a range of quantity.

~ No sales above AR=MR=D, no sense below AR=MR=D.

~ TR, shows a constant gradient.

Question 11

What Is Imperfect Competition?

Answer 11

Firms do have market power.

Question 12

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

Answer 12

~ Few buyers and sellers.

~ Differentiated goods sold.

~ Firms are price makers, allowing them to set their own prices.

~ Higher barriers to entry and exit.

~ Imperfect information of market conditions.

Question 13

How Can The Relationship Between Revenues Be Shown Numerically In Imperfect Competition?
(3 Points)

Answer 13

~ AR starts high (10) and begins to decrease as price does.

~ MR starts high school (10) and drops at a faster rate than AR.

~ TR rises at a faster rate as MR falls, hits its peak and then starts to decrease.

Question 14

Why Is MR Twice As Steep As The AR Curve?

Answer 14

When a firms drops its price, it does so on all the units sold before and after.

Question 15

How Can The Relationship Between Revenues Be Illustrated In Imperfect Competition?
(2 Points)

Answer 15

~ AR is the demand curve.

~ MR is 2x as steep as AR.

~ TR hits its peak when MR=0 and when PED=1.

Question 16

When Is TR Maximised & Why?

Answer 16

~ Maximised when MR=0 and when PED=1.

~ When MR is negative TR decreases.

~ Any point to the right of MR=0 cannot be maximising TR.

~ Any point to the left of MR=0 cannot be maximising TR.

Question 17

Why Can’t TR Be Maximised To The Left Of MR=0?
(3 Points)

Answer 17

~ MR is always positive, producing one more unit will always give you more revenue.

~ TR would then keep rising.

~ TR always rises as long as MR is positive.

Question 18

When Is The Demand Curve Elastic?
(2 Points)

Answer 18

~ Before MR=0.

~ When MR is positive, as TR continues to grow.

Question 19

When Is The Demand Curve Inelastic?
(2 Points)

Answer 19

~ After MR=0.

~ When MR is negative, as TR decreases.