Business Revenues Total revenue Average revenue Marginal revenue

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Business Revenues Total revenue Average revenue Marginal revenue Revenue and elasticity of demand tutor

Business Revenues Total revenue Average revenue Marginal revenue Revenue and elasticity of demand tutor 2 u™

Revenue concepts ¢ Revenue (or turnover) is the income generated from the sale of

Revenue concepts ¢ Revenue (or turnover) is the income generated from the sale of output in product markets. ¢ There are two main revenue concepts to grasp at this stage: ¢ tutor 2 u™ l Average Revenue (AR) = Price per unit = total revenue / output l Marginal Revenue (MR) = the change in revenue from selling one extra unit of output Total revenue (TR) = price per unit x output

Numerical example Price per unit (av. revenue) Quantity Demanded (Qd) Total Revenue (TR) Marginal

Numerical example Price per unit (av. revenue) Quantity Demanded (Qd) Total Revenue (TR) Marginal Revenue (MR) £s units £s £s 400 220 88000 370 340 125800 340 460 156400 310 580 179800 280 700 196000 250 820 205000 220 940 206800 190 1060 201400 tutor 2 u™

Numerical example Price per unit (av. revenue) Quantity Demanded (Qd) Total Revenue (TR) Marginal

Numerical example Price per unit (av. revenue) Quantity Demanded (Qd) Total Revenue (TR) Marginal Revenue (MR) £s units £s £s 400 220 88000 370 340 125800 315 340 460 156400 255 310 580 179800 195 280 700 196000 135 250 820 205000 75 220 940 206800 15 190 1060 201400 -45 tutor 2 u™

Marginal & Average Revenue P 1 Average revenue P 2 Q 1 tutor 2

Marginal & Average Revenue P 1 Average revenue P 2 Q 1 tutor 2 u™ Q 2 Output

Marginal & Average Revenue P 1 Lost revenue from lower price P 2 Increased

Marginal & Average Revenue P 1 Lost revenue from lower price P 2 Increased revenue from selling more Q 1 tutor 2 u™ Average revenue Q 2 Output

Marginal & Average Revenue P 1 Average revenue P 2 Marginal revenue Q 1

Marginal & Average Revenue P 1 Average revenue P 2 Marginal revenue Q 1 tutor 2 u™ Q 2 Output

Maximising Total Revenue Total revenue maximised when MR = zero P 1 AR Q

Maximising Total Revenue Total revenue maximised when MR = zero P 1 AR Q 1 MR tutor 2 u™ Output

A Shift in Revenue Curves Revenue AR 2 AR 1 MR 2 MR 1

A Shift in Revenue Curves Revenue AR 2 AR 1 MR 2 MR 1 tutor 2 u™ Output

Importance of revenues tutor 2 u™ ¢ Revenues affect the profitability of a business

Importance of revenues tutor 2 u™ ¢ Revenues affect the profitability of a business ¢ When demand is price inelastic, a fall in price causes a fall in TR (marginal revenue will be negative) ¢ The elasticity of demand (AR) has an effect on the profit margins of businesses in competitive and concentrated markets ¢ When demand is perfectly elastic, then the AR and the MR curves are the same