3.3-Revenue

Cards (10)

What is revenue?
The total amount of income/money businesses receive from selling their units
How is Total Revenue calculated?
Price per unit X Qty sold
What is the Average Revenue similar to?
The Demand Curve
How is Average Revenue calculated?
Basically price p/unit. So: Total Revenue/Qty
What is Marginal Revenue?
The change in income from selling an additional unit
Marginal Revenue formula
Change in TR/ Change in Qty
When does a business maximise Total Revenue?
When the Marginal revenue is equal to 0
How does revenue behave in perfect competition?
The firm is a price taker:
Every unit is sold at the same price
Product is perfectly price elastic:
A higher price would decrease sales to 0
A lower price would result in all sellers lowering their price
TR increases at a constant rate
MR=AR=Demand
How does revenue behave in imperfect competition?
The firm is a price-maker
For MR to increase, AR must decrease
AR and MR fall with additional sales
When AR falls, the MR falls by twice as much
AR is the Demand curve
When MR =0 (maximisation of revenue) then PED = 1
What is the Total Revenue Rule?
To maximise revenue, firms should:
Increase the price of inelastic products
Decrease the price of elastic products