Revenue Flashcards
Total Revenue
Price x Quantity
Average Revenue
Total revenue / output
Price makers
- when firms exert a degree of market power
- the output of large firms is significant enough to have an impact on the market price of a good
Average revenue curve
The demand curve
- downward sloping because reducing price and gives you more output
Marginal revenue
The change in total revenue as a result of changing output by one unit
What happens when the MR is positive?
Total revenue increases but at a slower rate
What happens when the MR is negative?
Total revenue decreases
Why is marginal revenue twice as steep as average revenue?
In order to sell even more units of output, firms not only need to decrease the price of the next unit of output but have to decrease the price of all previous units of output
What happens to marginal revenue as output increases when demand is price elastic?
A fall in price causes quantity demanded to increase more than proportionally
- so as output increases total revenue increases
What happens to marginal revenue as output increases when demand is price inelastic?
- marginal revenue is negative as to decrease output you have to increase price
- quantity demanded increases less than proportionally
Total revenue maximisation
When MR = 0
