3.3.1 Revenue

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6 Terms

1
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What is the formula for Total Revenue (TR)?

Price x Quantity

2
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What is the formula for Average Revenue (AR) and what curve is it identical to?

Total Revenue / Quantity = Price. The AR curve is identical to the firm's demand curve.

3
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What is the formula and meaning of Marginal Revenue (MR)?

Change in Total Revenue / Change in Quantity. It represents the additional revenue earned from selling one extra unit.

4
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Why does the MR curve fall twice as steeply as the AR curve?

Because selling an additional unit requires a firm to lower the price of all previous units sold.

5
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What is the relationship between TR and MR?

When MR is positive, TR increases. When MR = 0, TR is maximized. When MR is negative, TR decreases.

6
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How do price elasticity of demand regions affect total revenue?

In the price elastic region, lowering price increases TR (MR is positive). In the price inelastic region, lowering price decreases TR (MR is negative).