Revenue Curves

• What is another term for revenue?

  Turnover
• What is the formula for Total Revenue?

  Total Revenue = Price x Quantity Sold
• What does Marginal Revenue (MR) represent?

  Revenue from selling an additional unit
• How is Average Revenue calculated?

  Average Revenue = Total Revenue/Quantity Sold
• What happens to total revenue as price per unit falls?

  • Demand expands
  • Total revenue rises initially
  • Eventually, marginal revenue becomes negative
• Why does the MR curve lie below the AR curve?

  Because price must be cut to sell more units
• How does the MR curve behave compared to the AR curve?

  MR falls at twice the rate of AR
• What is the point of revenue maximization?

  Where MR = 0
• What happens to total revenue beyond the point where MR is less than zero?

  Total revenue starts to fall
• What is a price taker?

  A firm with no influence over price
• What does the marginal revenue curve look like for a price taker?

  It is horizontal at the market price
• What calculations should students be able to perform regarding revenue?

  • Total revenue calculations
  • Average revenue calculations
  • Marginal revenue calculations
  • Draw and interpret revenue curves
• What are the two sections of demand curves?

  • Elastic section
  • Inelastic section
• What is the optimum price for a firm on the total revenue curve?

  At the top of the total revenue curve
• How can revenue be demonstrated on a demand curve?

  By the area of Q x P at any price
• What happens to revenue if the price falls to the inelastic part of the demand curve?

  The area representing revenue decreases
• How does PED vary along a downward sloping demand curve?

  • PED is elastic at higher prices
  • PED is inelastic at lower prices