4.1.4.6 - Marginal, average, and total revenue
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8 Terms
Total Revenue =
All the money made from all sales
= Price x Quantity
Average Revenue =
Money from sales per item sold
= Total Revenue / Quantity
Why is the average revenue curve the same as the firm’s demand curve
Average Revenue is the same as Price.
Since the demand curve maps the price consumers are willing to pay for given quantities, AR and demand are the same, with both representing the price per unit at any output level.
Profit =
Total Revenue - Total Costs
Marginal Revenue =
Additional money made from each extra item sold
= Change in Total Revenue / Change in Quantity
AR & MR on Diagram
Why is the MR curve below/steeper than AR
Because to sell one additional unit, the firm has to lower the price on ALL units sold, not just the additional one.
So marginal revenue is lower than the price of the additional unit sold.
When is Total Revenue Maximised?
When MR = 0 or PED = -1
