4.1.4.6 - Marginal, Average and Total Revenue Flashcards
What is total revenue?
All the money received by a firm from selling its total output.
What is average revenue?
Total revenue divided by the output.
What is marginal revenue?
Addition to total revenue resulting from the sale of one more unit of the product.
What is the equation for average revenue?
Total revenue / Output = Average Revenue.
What is marginal revenue?
∆Total Revenue / ∆ Output = Marginal Revenue.
What is the relationship between price charged and average revenue?
The price charged is always equal to the average revenue.
What is perfect competition?
A market that contains the 6 conditions: large number of buyers and sellers, ability to buy/sell as much as desired at the market price, inability of an individual buyer/seller to influence the price, homogeneous product, no barriers to entry/exit in the long run.
What is a monopoly?
One firm only in a market.
Where are monopolies present in the real world?
Nationalized services.
What types of countries are monopolies seen?
Communist countries.
What do marginal and average curves plotted from the same data always display?
When marginal is greater than the average, the average rises. When marginal is equal to the average, the average does not change. When marginal is less than the average, the average falls.
What does a firm’s revenue curves depend on in a market?
The competitiveness of the market.
Marginal and average revenue curves remain constant across monopolies or perfect competition markets. T/F?
False, they are different across the two market types.
What are the characteristics of a perfectly competitive market?
Large number of buyers and sellers, perfect information, homogeneous products, no barriers to entry or exit.
What type of demand is found in a perfectly competitive market?
Perfectly elastic demand.
What is the relationship between the average revenue curves and marginal revenue curves in perfect competition?
The price set by the market is taken by individual firms.
What tends to happen in terms of firm size within perfectly competitive markets?
They are very small price takers.
Why should firms within perfectly competitive markets not lower or raise their price?
They do not benefit from extra sales, as there is infinite demand at the given price.
Why is a firm within a perfectly competitive market a price taker?
A perfectly competitive firm can sell whatever quantity it wishes at the ruling market price, but cannot influence the price by its own actions.
What does a horizontal demand curve mean in terms of average revenue and marginal revenue in a perfectly competitive market?
Demand is equal to the Average Revenue and the Marginal Revenue.
What is a price-maker?
A firm faces a downward-sloping demand curve for its product and has the market power to set the price.
What is a quantity setter?
A firm faces a downward-sloping demand curve and has the market power to set the quantity of the good it sells.
What does a sloping downwards demand curve mean within a monopoly?
The demand curve is equal to the Average Revenue curve.
Why is a sloping downwards demand curve equal to the AR curve within a monopoly?
A single price is charged for all goods sold, so average revenues are equal to the price and therefore equal to the demand curve.
