Revenue Flashcards
What is revenue?
The money earned by a firm from the sale of goods and services.
What are the 3 types of revenue in economics?
1) Total revenue (TR).
2) Average revenue (AR).
3) Marginal revenue (MR).
What is total revenue (TR)?
The income received from the sale of any given output.
What is marginal revenue (MR)?
The income gained for producing one extra unit of output.
What is average revenue (AR)?
The average receipt per unit sold.
What is the formula for total revenue (TR)?
TR = Q X P
Total revenue = quantity sold x price
What is the formula for average revenue (AR)?
AR = TR ÷ Q
Average revenue = total revenue ÷ quantity sold
What is the formula for marginal revenue (MR)?
MR = ΔTR ÷ ΔQ
Marginal revenue = change in total revenue ÷ change in quantity sold
When price is constant, why does MR = AR = D?
As the price of the good is constant, MR = AR. AR = D, as it shows the relationship between AR and quantity sold. Therefore, MR = AR = D.
What will happen to total revenue when prices fall?
At first, TR will rise. However, as sales increase, TR falls alongside prices. This is shown by the TR curve.
What will happen to marginal and average revenue when prices fall?
Both will fall, as sales increase.
What is the effect on revenue, when prices rise, and demand is price elastic?
A fall in revenue.
What is the effect on revenue, when prices rise, and demand is price inelastic?
A rise in revenue.
When PED is elastic, is MR positive or negative?
MR is positive.
When PED is inelastic, is MR positive or negative?
MR is negative.
