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  • Created on: 17-10-12 20:50
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Price (P) is the money cost to the consumer of a good or service sold by the producer.
Quantity (Q) is the quantity of goods or services produced by the producer and brought by the
Revenue (R) is the income earned by firms. It is the money that comes into the firm from selling the
goods it produces or the services it provides.
Total Revenue = Q x P
Average Revenue (AR) is the average receipt per unit sold.
Marginal Revenue (MR) is the price of selling an extra unit of output.
MR = Change in TR/Change in Q
Price Elasticity of Demand (PED) measures the responsiveness of demand to a change in its price.
PED=%change in Q/ %change in P
%change= new price-old price/old price X 100
Veblen goods are extreme examples of luxuries, for example, expensive paintings.
Giffen goods are inferior goods, which are related to income. An example is Tesco Value goods.
Total Revenue Curve:
TR rises initially because as price falls, quantity rises more than proportionately. TR is maximised at
the top of the curve because as price falls further, output rises less than proportionately.

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Average Revenue Curve:
AR slopes downwards because prices must fall to influence an increase in quantity demanded.…read more

Page 3

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A perfectly elastic demand curve results in a horizontal AR and MR curve. A constant price is charged
so P = AR = MR. An infinite amount of output is demanded.
Revenue and Elasticity
In the top half of the demand (or AR curve) curve, small proportionate changes in price lead to large
proportionate changes in quantity demanded, so PED is greater than 1 (elastic).…read more

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Total Revenue:-
The TR curve is a bell shape; it follows the same trajectory as a ball thrown in the air.
When MR is positive, TR is rising, when MR is negative, TR is peaking.
The top of the TF curve is directly below the mid-point of the AR curve which is the same
point the MR curve crosses the X axis.
Price Elasticity of Demand:-
PED varies along the demand or AR curve.…read more

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Yq-kNBM4JsM:&imgrefurl=http://catalog.flatworldknowle…read more



This summarises all the definitions and formulae for revenue. It also includes graphs.

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