REVENUE Flashcards
TR definition
the total amount of money a frim recieves from its sales
TR formula
TR = price x quantity
AR defintion
Average revenue is what a business recieves on avergae from each sale
AR formula
AR = TR/Q
What does AR equal to?
AR equals price (AR=P).
Why does AR equal P? simple explanation
AR is generated from each individual unit sold thus it equals to the price an item is selling/ sold for
Which curve is AR equal to?
the demand curve
Where must the demand curve start at ALL the TIME?
it MUST START AT PRICE AXIS. IT MUST BE TOUCHING.
What does marginal mean?
additional
MR definition
Marginal revenue is the additonal revenue a firm makes selling one extra unit. Its basically the extra revenue from increasing output (from 1 to 2 etc)
When MR is +
When MR is + it means TR is increasing with Q (If the MR is positive, each additional unit sold adds to the TR, so TR continues to rise as more output (Q) is produced.)
Why is MR positive?
MR is + when selling an additional unit of output increases TR, meaning the firm earns more by selling more units without a significant price reduction.
When MR is -
When MR is - it means TR is falling with Q (selling an additional unit of output decreases Total Revenue. )
Why is MR negative?
MR is - when selling an additional unit of output decreases TR, usually because the price must be lowered significantly to sell more units, outweighing the revenue gained from extra sales. So they get less MR each time as the price gets lower and lower.
When MR = 0
When MR = 0 - TR doesnt change/ stays the same. TR is maximised and unchanged with an additional unit of output produced.
What does it mean when MR = 0?
Beyond the point where MR = 0, any further sales will decrease TR due to the need to lower prices to sell more units.
In order for a firm to sell for more units, what does it have to do?
it has to lower price, so they more Q at a lower P.
