Revenue Curves Flashcards
What is average revenue equal to?
Price
What is the formula for total revenue?
Price x quantity
What is the formula for average revenue?
Total revenue/ quantity
Because AR = price which curve can be used to show AR?
The demand curve
What is meant by marginal revenue?
The revenue gained from selling one more unit
The price of the next unit produced and sold because price = revenue
What does the MR curve show us?
It shows what has to happen to price in order to sell additional units. For example if AR is £9 and MR is £7.50 this means that to sell additional units price has to be reduced to £7.50
How should the MR curve be drawn with the AR curve?
The MR curve should be twice as steep as the AR curve
What is the relation between AR and MR if PED is perfectly elastic?
AR would be equal to MR
At which point on MR is TR maximized?
TR is maximized when MR is equal to 0
What is the PED when MR is 0?
At MR = 0, PED = 1 because this is where total revenue is maximized. Unitary elastic demand means total revenue is maximized, any change in price will reduce total revenue
