4.6 Marginal, Average And Total Revenue Flashcards
What is total rev
All the money received by selling an output
What is average revenue?
Total revenue/output
What is marginal revenue?
Addition to total revenue resulting from the sale of one more unit of a product
Equation for marginal revenue?
Change in total revenue/change in output
What is a monopoly?
When there is only one firm in the market
What relationship is it important to display with average and marginal revenue curves(3 aspects)
When the marginal is greater than the average the average rises
When marginal is less than the average the average falls
When marginal = average the average is constant
What does the firms marginal and average revenue depend on?
The competitiveness of the market structure
What demand curve does a firm have perfect competition?
Completely elastic
What is a price taker?
A firm which is small and has to accept the ruling market price,if a firm raises its price it looses all of its sales
If a firm charges more than the market price in a completely competitive market is makes
No sales
It would make ____________ to produce below the ruling market price in a completely competitive market
No sense
What is a price-maker
When a firm has a downward sloping demand curve and it possesses the market power to set the price at which the product is sold
What is a quantity setter
When a firm has a downward sloping demand curve it has the market power to set the quantity of the good it wishes to sell
For a monopolist the Demand curve is the ?..
Ar Curve
What is the dilemma for monopolies?
To use market power to price fix or quantity fix
How much steeper is the MR curve than the AR curve?
Twice as steep
What happens to elasticity as it moves down the demand curve in a monopoly?
It decreases
What can increasing MR be shown by?
TR becoming steeper
What can decreasing MR be shown by?
TR becoming less steep and sales increasing
Demand curve for a firm when deciding how much output to sell(don’t overthink it)
The demand curve is equal to=
The average revenue curve
Diagram for average revenue curve and marginal revenue curves in perfect competition?
MR=AR
Average revenue in a monopoly diagram?
Why is a monopoly’s demand or AR curve not horizontal?
Because they have a choice between price setting and quantity making
Diagram for a monopolies AR and MR curves?
MR curve is twice as steep
Why are AR and MR curves not the same in a monopoly?
When the marginal value of a variable is less than the average variable of a product the average variable falls
(Because AR or demand falls as the monopolies increases the price because of its price setting powers)
Diagram for explaining a monopolists marginal revenue curve
Explain this diagram
Monopolist initially charges P1 and sells output level Q1
To increase sales to Q2 the downward sloping demand curve forces the monopolist to reduce price to p2
-K is the increase of sales and H is the loss of revenue
Marginal all revenue whims is revenue gain -revenue loss (K-H) must be less than area K
Diagram for the price elasticity of demand on a monopolist AR curve?
Describe this diagram
Price elasticity of demand falls moving down the demand curve (demand for the monopolist output is elastic falling to unit elasticity half way down and inelastic in the bottom half
Equation for average revenue?
Total rev/quantity
Equation for marginal revenue?
Change in total revenue/change in quantity
Total revenue equation?
PriceX quantity
