4.1.4.6 Marginal, average and total revenue Flashcards
What is revenue
The income a firm receives from selling its products, goods and services
Total revenue=
Price per unit x no of units sold
Profit=
Total revenue- total cost
what is marginal revenue?
it is the extra revenue earned from the sale of one extra unit
what is average revenue?
it is the revenue generated per unit of output sold
what is the relationship between average and marginal revenue?
when demand is perfectly elastic marginal revenue = average revenue
what is the relationship between marginal revenue and total revenue.
Marginal revenue is directly related to total revenue because it measures the change in the total revenue with respect to the change in another variable.
how do you calculate average revenue
total revenue / quantity sold
how do you calculate marginal revenue
change in total revenue / change in quantity sold
How is average revenue equal to price ?
Average revenue=Total revenue/Quantity
therefore AR=Q*P/Q= P.
Therefore, AR=P
Why is the average revenue curve the same as the demand curve?
AR curve show the graphical representation between AR and quantity,and AR=Price
therefore AR shows the relationship between price and quantity which is same as demand curve.
