3.3.1: Revenue

Revenue

• The money earned form the sale of goods and services

Total revenue

• The total amount of money coming into the business through the sake of goods and services

• Quantity x Price

Average revenue

• Demand is equal to AR

• Total revenue/output

Marginal revenue

• The extra revenue generated when a firm sells one more unit of production

• TR from N amount of goods- TR from N-1 amount of goods

• Change in TR/Change in output

Price elasticity

• Some firms experience a perfectly elastic demand curve

• These firms are in perfect competition

• These firms have no price setting power

• The price received for the good is constant so MR=AR=D

• The TR curve s upward sloping because prices are constant and so the more goods sold, the revenue made

• For most goods, the price decreases as output increases- downward sloping demand curve

• Firms have price setting power because consumers are willing to ay for each quantity sold

• When firms sell a product at a lower price, TR still grows and so demand is elastic up until MR=0- TR is maximised here- unitary elastic

• If MR is negative, TR decreases and the demand curve is inelastic