micro - revenue Flashcards
what is revenue?
the payment a firm receives from selling goods and services.
how do you calculate TR?
price x quantity
how do you calculate AR?
TR/Q
how is AR the same as price?
rearrange formula:
AR = TR/Q
AR = P X Q/Q
cancel out Q’s and left with just P
what is marginal revenue?
the change in total revenue from selling one more unit of good
what are the characteristics of a perfectly competitive market?
many buyers and sellers
homogenous goods and services - identical
firms are price takers - have no ability to set price
no barriers to entry/exit
perfect information
in a competitive market, price…
does not fall with output sold
what are the characteristics of a perfectly competitive market?
few buyers and sellers variety of goods and services firms are price makers higher barriers to entry/exit imperfect information
what is the relationship between MR and AR?
MR twice as steep as AR
where is TR maximised?
when MR = 0
why is the AR curve also a demand curve?
both illustrate relationship between price and quantity demanded
when PED > 1…
elastic so price increase/ revenue decrease
price decrease/revenue increase
which part of the graph is relatively elastic?
top half
when PED < 1…
inelastic so price increase/revenue increase
price decrease/revenue decrease
which part of graph is relatively inelastic?
bottom half
