3.3.1 revenue

• revenue

  the income generated from the sale of goods and services in a market
• average revenue (AR)

  price per unit = total revenue/output

  demand curve
• marginal revenue (MR)


  change in total revenue from selling one extra unit of output
• total revenue (TR)


  TR = price per unit x quantity

  TR = AR x quantity

  TR = price x output sold
• some firms experience a perfectly elastic demand curve - firms in perfect competition, have no price setting power

  the price received by the firm for the good is constant, MR=AR=D

  TR curve is upward sloping as prices are constant - more goods sold, higher the revenue

  
• for most goods, the price decreases as output increases + there's a downward sloping demand curve + a downward sloping AR curve

  demand curve for the firm is the same as the firm's AR revenue curve

  in imperfect competition and have some price setting power

  elasticity of the curve is linked to marginal revenue

  total revenue rises with output when MR is positive (MR>0) the begins to decline when MR is negative (ME<0)

  
• price makers


  the firm has the ability to set their own prices for the goods and services that they sell

  happens in all imperfectly competitive markets
• price takers


  in a highly competitive market (competitive competition) an individual firm will be a price taker

  they have no pricing power and have to accept the prevailing market price

  demand curve is perfectly elastic - horizontal

  MR will be the same as AR, each additional unit will be sold at exactly the same price

  TR will be an upwards sloping line