Topic 4.6 Marginal, average and total revenue.

Question 1

Total Revenue

Answer 1

Total Revenue (TR) is calculated by the price times quantity sold. This is the revenue received from a sale at a given level of output.

Question 2

Average Revenue

Answer 2

Average Revenue (AR) is the price that each unit is sold for. TR/Quantity Sold.
This means that the average revenue curve is the same as the demand curve (as they both plot out the same line on a PQ graph)

Question 3

Marginal Revenue

Answer 3

Marginal Revenue (MR) is the extra revenue earned from the sale of one extra unit.

Question 4

Perfect Competition Markets

Answer 4

1. With markets in perfect competition, (where firms are price takers) the AR curve is horizontal representing the perfect elasticity demand for their goods.
2. Due to this, average revenue = marginal revenue

Question 5

Marginal Revenue Formula

Answer 5

change in total revenue/change in quantity sold