3.3.1 - revenue

define total revenue (TR)

the total value of all sales that a firm incurs

formula for total revenue (TR)

TR = price x quantity

define average revenue (AR)

overall revenue per unit

average revenue (AR) formula

AR = TR/Q

define marginal revenue (MR)

the extra revenue recieved from the sale of an additional unit of output

marginal revenue (MR) formula

MR = change in TR / change in Q

what happens if you want to increase quantity sold

you have to decrease the price for EVERYONE (including the ppl who bought it for higher when your quantity was smaller)

that’s why MR is twice as steep as AR

what is the AR curve

same as price (TR/Q), therefore the same as the demand curve

in perfect competition, what do the AR and MR curves look like

all perfectly inelastic

the firm is a price taker

what do the AR and MR curves look like in imperfect competition

downwards sloping

the firm is a price maker

what happens when MR = 0 (to TR, and to PED)

TR is maximised
PED is unitary