Revenue

• Revenue

  The money made from sales by a business
• Total revenue

  Price charged multiplied by quantity sold
• Average revenue

  Total revenue divided by quantity sold
• Marginal revenue


  The extra revenue generated when more output is sold
• Marginal revenue is calculated as the change in total revenue divided by the change in quantity
• Perfect competition

  • Many buyers and sellers
  • Selling homogeneous goods/services
  • Firms are price takers
  • No barriers to entry and exit
  • Perfect information of market conditions
• In perfect competition

  Average revenue = Marginal revenue = Demand
• In perfect competition

  Total revenue has a constant gradient, increasing linearly
• Imperfect competition


  • Few buyers and sellers
  • Selling differentiated goods/services
  • Firms are price makers
  • High barriers to entry and exit
  • Imperfect information of market conditions
• In imperfect competition

  • Average revenue starts high and falls (demand curve)
  • Marginal revenue starts at the same point as average revenue but falls at a much faster rate
• Total revenue in imperfect competition

  Rises at a slower rate, peaks when marginal revenue = 0, then falls
• Total revenue is maximized when marginal revenue = 0