4.6 Marginal, Average and Total revenue

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Revenue is

price x output

Marginal revenue

the additional revenue generated by selling one extra unit of output

Average revenue

total revenue/quantity

Total revenue

price x quantity sold (the area under the AR curve)

what does the AR curve represent

the price at which a firm can sell a particular quantity of output

Relationship between MR and AR in imperfectly competitive markets

AR intersects the x axis at twice the value that MR intersects

What is the firms demand curve

AR

Why is AR the firms demand curve

AR is the price at which a firm can sell a particular quantity of output and the demand curve is the price at which consumers are willing to purchase a given quantity of a good

Relationship between MR and AR in perfectly competitive markets

All units are the same price so MR = AR

The relationship between MR and TR

When MR > 0, TR is increasing

When MR = 0, TR is maximised

When MR < 0, TR is decreasing