Revenue (3.3.1) Flashcards
What are the Three types of Revenue?
- Total Revenue
- Average Revenue
- Marginal Revenue
What is Total Revenue?
Total Revenue is the total value of all sales a firm incurs
What is the equation for Total Revenue?
Total Revenue (TR)= Selling Price (P) x Quantity sold (Q)
What is average revenue?
The overall revenue per unit
What is the equation for average revenue?
Average Revenue (AR)= TR/Q
What is Marginal Revenue?
The extra revenue received from the sale of an additional unit of output
What’s the equation for Marginal Revenue?
Marginal Revenue (MR)=(Change) in TR/ (Change) in Q
Where are the relationships between TR, AR and MR different?
Perfect and imperfect competition
What is Perfect Competition?
Where a large number of firms operate in the market and no single firm can influence the market price. All firms are price takers as all the products sold are identical (homogeneous). All buyers and sellers have perfect info and the prices are determined by demand and supply in the market
What is Imperfect Competition?
There are fewer firms compared to perfect competition. The number can range from a few firms (oligopoly) to one firm (monopoly). Firms sell differentiated products which have unique features, branding or qualities. There is imperfect competition and firms can make economic profit as they are price makers rather than price takers
What will the TR,AR and MR be like in perfect competition compared to Imperfect Competition?
In Perfect Competition the price is all set at same whereas in imperfect competition prices are all different so using the equations for TR, AR +MR the values are different in Imperfect competition market compared to Perfect Competition market
In Perfect competition market what is the relationship between MR and AR?
MR=AR=Demand
What is the rule to increase revenue for Price Elastic and Price Inelastic? (Changing Price)
Price Inelastic- Firm should increase the price of products
Price Elastic- Firms should decrease prices of products
What does Price Elastic demand look like on a graph?
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What does Price Inelastic demand look like on a graph?
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What does a Perfectly elastic demand curve look like? + What does it show?
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Why can the TR curve be a U-shape? What does this look like on a graph?
The TR curve is U-shaped because at first total revenue rises with output (when MR is positive) but it then begins to decline (when MR is negative
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