Marginal, Average & Total Revenue Flashcards
1
Q
Marginal, Average & Total Revenue
A
Total Revenue: Revenue received from sale of a given level of output, TR = price x quantity sold
Average Revenue: Average receipt per unit (price each unit is sold for), AR = TR / quantity sold
Marginal Revenue: Extra revenue earned from sale of one extra unit, the difference between TR at different levels of output
2
Q
Why AR = Demand
A
- AR curve is firm’s demand curve, because AR is the price of the good
- When firms are price takers, AR curve is horizontal, shows perfectly elastic demand for goods
3
Q
Relationship Between AR & MR,
MR & TR
A
- When demand is perfectly elastic, AR = MR
- MR measures change in TR with respect to changes in the amount of G&S sold
- MR = change in TR / change in quantity sold
