3.3.1 Revenue

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4 Terms

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Formulae to calculate total revenue

price x quantity sold

2
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Formulae to calculate average revenue

AR = Total revenue / quantity sold = PQ/Q = P

  • the revenue made per unit sold

  • Demand is also known as average revenue (AR)

    • This is because AR (& also MR) tend to be downward sloping like the demand curve due to the need for firms to lower prices to increase sales

3
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Formulae to calculate marginal revenue

  • MR = change in TR / change in Q = change in PQ/change in Q = P = AR

  • Therefore, AR = MR = P

  • It’s the change in total revenue from selling one more unit of output

4
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Price elasticity of demand & its relationship to revenue concepts (calculation required) (question: how is price elasticity of demand related to revenue?)