Total, Average and Marginal revenue Flashcards
Revenue
The money flowing into a business over a given time period from selling goods and services in markets - it’s also known as turnover/sales
Total revenue=
Price per unit x quantity spld
Average revenue(unit price for each item)=
Total revenue/output
Marginal revenue=
Change in total revenue/Change in demand(quantity)
Why does marginal revenue fall quicker than average revenue?
Because average revenue is price per unit(higher than marginal revenue figures). Average revenue decreases as we sell more and more extra units
Marginal revenue=
Extra revenue generated from selling one extra unit of output in a market
When are businesses forced to sell merchandise at a loss!?
If they’re closing down
Profit=
total revenue - total cost
When does a business maximise their total revenue?
Where the marginal revenue from the next unit of a good or service sold is equal to 0
Revenue maximiser objective
To sell as many units as possible at the lowest affordable price, in order to benefit market share expansion and the customers to pay less money for each unit they’re purchasing
What happens as long as marginal revenue is positive?
If you cut the price, the total revenue goes up, until the marginal revenue reaches 0.
