Revenue

Question 1

Describe the properties of Total Revenue (TR).

Answer 1

• Total Revenue is the total amount of money receives within an amount of time.
• Total Revenue is equal to Quantity X Average Revenue. This is known as the turnover.

Question 2

Describe the properties of Average Revenue (AR).

Answer 2

• Average Revenue is the revenue per unit sold.
• Average revenue is equal to total revenue divided by the quantity.
• Average Revenue is Synonymous to Demand.

Question 3

Describe the properties of Marginal Revenue (MR).

Answer 3

• Marginal revenue is equal to the additional revenue gained/lost from the final unit of production.
• Marginal revenue is equal to total revenue minus the total revenue of the previous unit.

Question 4

Describe the relationship between revenue and output for a Price Taker.

Answer 4

• The demand curve shows what quantity of a product a firm will be able to sell at a given price.
• Price = AR.
• A pricetaker firm has perfectly elastic demand curve (totally flat), because it has to accept the market price.
• AR = MR, because the increase in price is the same for every good.
• When AR is constant, TR is proportionally increased (straight-line graph).

Question 5

Define Revenue.

Answer 5

• Revenue is the money firms receive for the goods or services they sell.
• Revenue is categorised into Total Revenue(TR), Marginal Revenue(MR) and Average Revenue(AR).

Question 6

Describe the relationship between revenue and output for a price-maker.

Answer 6

• Price makers have the power to set market price. However, the increase in sales would mean a decrease in quantity.
• A price makers demand curve(AR) is downward sloping.
• Profit(TR) is maximised when the firm is operating at the midpoint, where PED = -1.
• To the left of the Midpoint, demand is elastic, to the right, demand is inelastic.
• MR = 0 when TR is at it’s maximum.
• TR has a bell curve shape.
• Past the AR midpoint, and MR becomes negative.