Revenue

• What is total revenue?

  The amount of money a firm receives
• What is the formula for total revenue?

  Price x quantity sold
• What is a price maker firm?

  A firm that has enough market power to influence the price of the good it is selling
• What shape is the total revenue curve for a price maker firm?

  It is a parabola shape, where as the price decreases the revenue will increase up to the point of maximum revenue, where further price cuts will cause total revenue to decrease
• What is a price taker firm?

  A firm that has to offer its product at the same price as other competitors
• What shape is the total revenue curve for a price taker firm?

  It is a straight line through the origin, where the firm is operating in a competetive market and so has to accept the market-determined price, whatever output it produces
• What is average revenue?

  The revenue the firm receivs per unit sold
• What is the formula for average revenue?

  Total revenue/quantity sold
• What shape is the average revenue curve for a price maker firm?

  Downward sloping
• What shape is the average revenue curve for a price taker firm?

  Horizontal, because revenue depends entirely on demand and supply, and these firms have to accept the price offered
• What is marginal revenue?

  The addition to total revenue from selling one more unit of output
• What is the formula for marginal revenue?

  Change in total revenue/change in quantity sold
• What shape is the marginal revenue curve for a price maker firm?

  Downward sloping, with the gradient being two times steeper then the average revenue curve, but is overall less than average revenue because cutting prices means losing money on the items that the firm sold
• What shape is the marginal revenue curve for a price taker firm?

  Horizontal and equal to average revenue
• What is the relationship with revenue when demand is price elastic?

  Marginal revenue is positive, and total revenue moves in the opposite direction to the price change
• What is the relationship with revenue when demand is price inelastic?

  Marginal revenue is negative, and total revenue moves in the same direction as the price change
• What is the relationship with revenue when demand is unitary elastic?

  Marginal revenue is 0, and total revenue is the same as the previous price change