Revenue Flashcards
What do you understand by revenue?
It is the amount received by a firm from the sale of a given commodity in the market.
What is TR?
It refers to total revenue. Total revenue refers to total receipts from sale of given commodity.
TR = P x Q
What is AR?
AR is average revenue. It is the revenue per unit of output sold.
AR = TR/Q
What are the 2 features of AR?
- AR= Price
- AR is also known as demand curve.
Area under AR curve gives _______
TR
Why is AR curve downward sloping?
AR curve is also known as the demand curve and hence is downward sloping. This is because according to law of demand, if you want to sell more, you have to reduce the price and AR is equal to price.
What is MR?
It is the additional revenue generated from sale of additional unit of output.
MR= Change in TR/ Change in Q
OR
MR= New TR - Old TR
What is the behaviour of AR and MR under perfect competition?
Under perfect competition, AR is obviously constant because price remains constant. The same case is with MR. Under a perfect competition, AR is equal to MR. MR is also constant.
Under perfect competition MR and AR graph is?
Parallel to X axis
In perfect competition, if MR is constant, then what happens to TR?
In perfect competition, TR increases at constant rate
What is the curve of TR in perfect competition?
TR curve is positively slope straight line
Why does the TR curve start from origin?
Since TR is zero at zero level of output, the curve starts from origin
Area under AR/MR curve is equal to what?
TR
When price falls with the rise in output, what is called?
Imperfect competition
In imperfect competition _______ falls with increase in sales
AR/price
In imperfect competition to increase our sales, we have to do what?
To increase our sales, we have to lower our price according to law of demand
In imperfect competition ______ and _______ fall
MR and AR
In imperfect competition _____>______
AR > MR
Why does MR fall faster than AR?
MR fall faster than AR because each time you sell an additional unit, you have to lower the price even more.
Two features of the MR and AR curve?
MR curve can positive zero and negative.
AR curve remains positive
When does AR increase? (General relation between MR and AR)
As long as MR is higher than AR
When does AR fall? (General Relation)
When MR is less than AR (MR<AR)
When is AR maximum and constant?
When AR = MR
When MR falls AR also falls but _____
Fall in MR is more than fall in AR
Which curve is steeper, MR or AR?
MR
When MR is positive, TR?
Increases
When TR is maximum, MR?
0
When TR rises, MR?
Positive
When MR is negative, TR?
Falls
MR can be zero or negative in perfect competition . True or false?
False
Total cost is the sum of marginal cost. True or false?
False
