Revenue Flashcards
TR calculation
P X Q
AR calculation
TR/Q
AR=P
why does AR = P
becuase TR - P*Q / Q = Q so Qs cancel out
Marginal Revenue meaning
extra revenue gained when we sell one more output
Marginal Revenue equation
change in TR / change in Q
Revenue depedns on
level of competition
what are the two types of competition
perfect
imperfect
state the conditions of perfect comp
many buyers and sellers( infinite (extreme))
homogenous goods and services
therefore
firms are price takers
No barriers to entry/exit
Perfect information about market condiitons
insane comp means firms are price takers what does this mean
regardles of number of units being sold
always sold at same price
AR and MR are
same and constant over range of ouptut
what are the axis on the perfect/imp comp rev groahs
y axis -price/revenue
x axis - quantity
Draw + describe how an AR and MR curve look
constant horizontal line
AR=MR=D
draw + describe+ explain how TR curve looks
linear upward sloping line
TR always increases by * so therefore linear upward sloping line shows constant gradient
i.e always increaseing by x
State assumptions of imperfect competiton
few buyers and sellers
all sell differentiated products
therefore
price makers
more brarriers to entry and exit
imperfect info of mkt conditions
How is the price set in imperfect competition
firms are price makers so charge diffrerent pries
in imperfect comp firms are price makers so charge different prices what is this goverend by
low of diminsihing utility
IMPCOMP firms price makers so charge diff prices which are governed by law of diminishing utility so what happens when theres changes in price
high price - low q sold
low price - high q solf
Draw AR and MR curves + describe
ar downward sloping
MR downward sloping but 2x as a steep as AR
Why is AR downard sloping
cause = to D curve
Describe + draw TR curve
rises but at slower rate each time
because MR’s falling
when hits peak decreases
TR must iht pek when MR=0
When is TR maximised
MR = 0
Explain why TR is not maximised when MR is -ve
When MR-ve TR is decreasing so all extra units generated with –ve revenue so TR is decreasing so not being maxed
Explain why TR is not maximised when MR is +VE
producing one more unit always provide more revenue
therefore TR will keep rising
rate at which it’s rising will be falling because MR decreases
but TR always increaisng as long as MR is +Ve
so point TR maxed is when theres no more extra revenue to be made i.e MR=0
any point to left of peak of TR under MR curve is not maxing TR why
MR is +ve
