Revenue

Question 1

Equation for total revenue

Question 2

Equation for Average revenue

Answer 2

Average revenue = Total revenue / quantity

Question 3

Marginal revenue equation

Answer 3

Change in total revenue / change in quantityh

Question 4

Characteristics of perfect competition

Answer 4

• many buyers and sellers
• homogenous goods (identical g&s)
• firms are price takers (can not set the price)
• no barriers to entry / exit
• perfect competition

Question 5

What does the AR line look like in perfect competition

Answer 5

Question 6

What does the TR line look like in perfect competition

Answer 6

Question 7

Characteristic of imperfect competition

Answer 7

• few buyers and sellers
• differentiated goods
• firms are price makers
• high barriers to entry and exit
• imperfect information of market conditions

Question 8

What does the AR line look like with imperfect competition and what does it equal to

Answer 8

Question 9

What does the MR line look like on a diagram and what should it be twice as steep as

Question 10

What does Total revenue line look like on an imperfect competition diagram

Answer 10

Question 11

Why is total revenue maximised when marginal revenue = 0

Answer 11

When marginal revenue is negative, total revenue is going to be decreasing - therefore any point to the right of MR cannot be maximising TR. any point to the left of the MR curve is also not maximising revenue, this is because adding one extra unit would always give more revenue and therefore increasing TR. The only point when TR is maximised is when there is no more extra revenue to be gained.