Business Revenues Total revenue Average revenue Marginal revenue

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 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 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 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 u™ Q 2 Output

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 tutor 2 u™ Q 2 Output

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 tutor 2 u™ Output

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