1.4.6 and 1.4.7 Marginal, Average, Total Revenue and Profit

Marginal Revenue

The addition to revenue of selling an additional unit of output; calculated as the change in total revenue divided by the change in quantity.

Average Revenue (AR)

Total revenue divided by output, often represented as AR = TR/Q.

Total Revenue (TR)

The money received by a firm from the sale of goods or services, calculated as TR = Quantity x Price.

Perfect Competition

A market structure where firms are price takers and face a perfectly elastic demand curve.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Normal Profit

The minimum reward required for a firm to remain in an industry, considered an opportunity cost.

Supernormal Profit

Any profit above normal profit, often attracting new firms to the industry.

Factors Influencing Revenue

Aspects such as market demand, price settings, and competition that affect a firm's total revenue.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded.

Economic Profit

The difference between total revenue and total costs, including opportunity costs.

Accounting Profit

Total revenue minus explicit costs, excluding opportunity costs.

Shifts in Demand Curve

Changes in consumer preferences, income, or prices of related goods that can shift the demand for a product.

Price Takers

Firms that must accept the market price as given because their individual output is too small to affect the market.

Marginal Cost

The cost of producing one more unit of a good.

Allocative Efficiency

A situation in which resources are distributed in such a way that maximizes total societal welfare.

Equilibrium Price

The price at which the quantity of a good demanded equals the quantity supplied.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service versus what they actually pay.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive.

Oligopoly

A market structure in which a small number of firms have significant market power.

Monopoly

A market structure where a single seller controls the entire market.

Market Power

The ability of a firm to influence the price of its product.

Dynamic Efficiency

Efficiency achieved through innovation and technological improvements over time.

Long Run vs Short Run

In economics, the long run is a period in which all inputs can be varied, while in the short run, at least one input is fixed.

Optimal Pricing

Setting a price point where a firm maximizes its profit based on demand and cost conditions.

Price Discrimination

The practice of selling the same product at different prices to different consumers.

Hurdle Pricing

A pricing strategy that requires customers to overcome a certain threshold in order to access lower prices.

Managerial Economics

The study of how economic principles can be applied to decision-making by managers.

Rate of Return

The gain or loss made on an investment relative to the amount invested.

Cost-Benefit Analysis

A systematic approach to estimating the strengths and weaknesses of alternatives.

Economies of Scale

Cost advantages that a business obtains due to scale of operation, with cost per unit of output generally decreasing with increasing scale.

Imperfect Competition

Market structures that fall between perfect competition and monopoly, characterized by some degree of market power.

Utility Maximization

The principle that consumers will choose combinations of goods to maximize their satisfaction.

Investment Returns

The gain or loss from investing, expressed as a percentage of the investment's cost.

Behavioral Economics

The study of psychology as it relates to the economic decision-making processes of individuals and institutions.

Economic Efficiency

A situation in which all resources are allocated to maximize total utility or benefit.

Market Structures

The organizational and other characteristics of a market.

Supply Elasticity

The responsiveness of the quantity supplied of a good to a change in its price.

Monopsony

A market situation in which there is only one buyer.

Government Regulation

Laws and rules that limit the actions of firms in an economy.

Competitive Markets

Markets characterized by many buyers and sellers where no single buyer or seller can control price.

Profit Margin

A measure of a company's profitability calculated as net income divided by revenues.

Return on Investment (ROI)

A performance measure used to evaluate the efficiency of an investment.