3.3.1 Revenue

Question 1

Define total revenue and explain how it is calculated

Answer 1

Total Revenue is the total amount of money a firm earns from selling a certain quantity of goods or services at a given price. It is calculated by multiplying the quantity sold (Q) by the price per unit (P).

TR = P * Q

Question 2

Define average revenue and explain how it is calculated

Answer 2

Average Revenue, also known as the price per unit, is the revenue generated by each individual unit sold. It is calculated by dividing the total revenue (TR) by the quantity sold (Q).

AR = TR / Q

Question 3

Define marginal revenue and explain how it is calculated

Answer 3

Marginal Revenue is the additional revenue generated by selling one more unit of a product. It is calculated by finding the change in total revenue when one more unit is sold.

MR = ΔTR / ΔQ

Where ΔTR is the change in total revenue and ΔQ is the change in quantity sold

Question 4

Explain the relationship between PED and Revenue

Answer 4

1. When demand is elastic (PED > 1), price and total revenue move in opposite directions.
2. When demand is inelastic (PED < 1), price and total revenue move in the same direction.
3. When demand is unitary elastic (PED = 1), total revenue remains constant when prices change.