Revenue Flashcards
Formula for Total Revenue
Price x Quantity
Formula for Average Revenue
Total Revenue / Quantity
= Price
What curve is the average revenue curve equivalent to?
The Demand Curve
Define marginal revenue
The additional revenue a firm makes from selling one extra unit
In economics the word marginal means..
Additional
What happens to total revenue as price increases as quantity increases?
Total revenue increases
Finish the sentences below
- When marginal revenue is positive…
- When marginal revenue is 0…
- When marginal revenue is negative
- Total revenue increases as quantity increases
- Total revenue doesn’t change
- Total revenue decreases with quantity
If we have the data below, what is the average revenue
Price = £10
Quantity = £0
AR = Price
Even if the quantity demanded is zero, average revenue will always equal price.
Formula for marginal revenue
Change in total revenue/change in quantity
REMEMBER:
- Marginal revenue is the revenue earned from selling ONE additional unit.
E.G.
- If the question specifically asks for marginal revenue when quantity increases from 3 to 5, we are only looking for the change in revenue from one additional unit. This is two.
- Be careful not to mistakenly calculate the change in revenue from two additional units instead of one.
- Always keep in mind that marginal revenue is only concerned with the revenue generated by one extra unit.
Formula for change in TR
New TR - Old TR
If total revenue goes down what happens to marginal revenue
Marginal revenue will become negative
Define total revenue
How much a business receives in total from its sales
What are the 3 features of a marginal revenue curve?
- Starts at the same price level as the AR curve
- Twice as steep so will reach the quantity axis halfway through the AR curve does
- It will continue into the negatives but stop at the same quantity that average revenue stops at AR
