revenue and profit

• What is total revenue (TR) calculated by?

  Price times quantity sold
• What does total revenue (TR) represent?

  Revenue from the sale of a given output
• How is average revenue (AR) calculated?

  TR divided by quantity sold
• What does average revenue (AR) indicate?

  Price each unit is sold for
• What is marginal revenue (MR)?

  Extra revenue from one additional unit sold
• How is marginal revenue determined?

  Difference between total revenue at different outputs
• What is the formula for total revenue?

  • Total Revenue (TR) = Price x Quantity Sold
• What happens to total revenue when prices are lowered?

  Total revenue increases with higher sales
• What does the AR curve represent?

  The firm's demand curve
• What does a horizontal AR curve indicate?

  Perfectly elastic demand for goods
• What is the relationship between marginal revenue and total revenue?

  MR is the extra revenue from one more unit
• When is total revenue maximized?

  When marginal revenue is 0
• Where is the point where MR = 0 located?

  Directly below the midpoint of the AR curve
• What does it mean when TR falls if prices change around the MR = 0 point?

  TR decreases with price changes around that point
• How is accounting profit calculated?

  Total monetary revenue minus total costs
• Why is accounting profit higher than economic profit?

  Economic profit includes opportunity costs
• What is normal profit?

  Minimum reward to keep entrepreneurs supplying
• When does a firm make a loss?

  When total costs exceed total revenue
• What is supernormal profit?

  Profit above normal profit
• When does a firm break even?

  When total revenue equals total costs
• What is the condition for profit maximization?

  MC equals MR
• What happens to profits when MR is greater than MC?

  Profits increase
• What happens to profits when MC is greater than MR?

  Profits decrease
• Why do firms choose to profit maximize?

  • Greater wages and dividends for entrepreneurs
  • Retained profits are a cheap finance source
  • Short-run interests of owners or shareholders
  • Stable prices and output in the long run
• What does a horizontal AR curve indicate in price-taking markets?

  Price received for goods is constant
• What is the relationship between AR and demand curve?

  AR equals the demand curve
• What happens to total revenue if demand is elastic and price increases?

  Quantity demanded will fall
• What does an elasticity of demand of +2 indicate?

  Demand is very elastic
• What does an elasticity of demand of +0.1 indicate?

  Demand is relatively inelastic
• What is the typical shape of the AR curve?

  Downward sloping
• How does the MR curve compare to the AR curve?

  MR curve is twice as steep as AR curve
• What are the key revenue concepts in economics?

  • Total Revenue (TR)
  • Average Revenue (AR)
  • Marginal Revenue (MR)