4.1.4.6 Marginal, average and total revenue

revenue

the money a firm receives from selling its goods/services, and it is different from profit, which is revenue minus cost

Price x Quantity sold

Total revenue formula

TR - TC

profit formula

total revenue

overall amount of money earned

Average revenue

revenue received per unit sold, found by dividing total revenue by output

market price

in most cases, average revenue equals the:

slopes downward => firm has some control over P unlike in perfect competition(many sellers)

shape of AR curve give clues about market structure

marginal revenue

extra revenue gained from selling one additional unit of output

∆TR/∆Q

formula for MR

many, =, constant, elastic, zero

• perfect competition

  • ____ buyers/sellers

  • firm is price taker, AR _ MR both are ________

  • Perfectly _______(firm has ____ control over price)

lower, more, decrease, increases, <, first, falls twice as fast, lowering, more, previous

• Imperfect market

  • the firm must _____ price to sell ____

  • AR and MR ___________ as output ___________

  • MR _ AR after ____ unit

  • MR _____ ______ __ ____ as AR

    • ______ price to sell one ____ unit also reduces price for all ___________ units

market structure

the way a market is organised based on how many firms sell a product and how much control they have over the price

negative

When PED is elastic P and TR have a ____________ relationship

positive

When PED is inelastic P and TR have a ____________ relationship

max, 0, 1(unitary)

TR is ___ when MR = _ and PED = _(______)