4.6 Marginal, Average And Total Revenue

Question 1

What is total revenue?

Answer 1

• This is the revenue
  received from the sale of a given level of output.

Question 2

What is total revenue calculated by?

Answer 2

• price times quantity sold

Question 3

What is average revenue?

Answer 3

• is the average receipt per unit.
• In other words, this is the price each unit is sold for.

Question 4

What is average revenue calculated by?

Answer 4

• TR / quantity sold

Question 5

What is marginal revenue?

Answer 5

• the extra revenue earned from the sale of one extra unit.
• It is the difference between total revenue at different levels of output.

Question 6

Why is the average revenue curve the demand curve/downward sloping?

Answer 6

• Because the average revenue curve is the price of the good.

Question 7

What is the shape of the AR curve in markets where firms are price takers?

Answer 7

• the AR curve is horizontal.
• this shows the perfectly elastic demand for their goods.

Question 8

What is profit?

Answer 8

• is the difference between TR and total costs.
• It is the reward entrepreneurs receive from taking risks.

Question 9

What is the relationship between average revenue and marginal revenue?

Answer 9

• When demand is perfectly elastic,

-marginal revenue = average revenue.

Question 10

What is the relationship between marginal revenue and total revenue?

Answer 10

• Marginal revenue= the change in total revenue divided by the change in quantity sold.