Total, Average and Marginal Revenue Flashcards

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What is total revenue (TR)?

It is the money a firm gets from sales. TR = price × quantity.

How do you calculate total revenue?

Multiply price by quantity sold. Example: £5 × 20 = £100.

What is average revenue (AR)?

It is revenue per unit sold. It shows money per item.

How do you find average revenue, and when is it equal to price?

AR = TR ÷ quantity. If every unit sells at one price, AR equals the price.

What is marginal revenue (MR)?

It is the extra revenue from selling one more unit.

How do you calculate marginal revenue?

MR = change in TR ÷ change in quantity. Example: TR £150 to £162 and quantity 30 to 33 gives MR = £12 ÷ 3 = £4 per unit.

If a firm can sell any number at the same price, what are AR and MR?

Both equal the price.

If a firm must cut price to sell more, how do AR and MR compare?

Both fall as output rises, and MR is below AR.

What does MR tell you about total revenue (TR)?

If MR is positive, TR is rising. If MR is zero, TR is at a maximum. If MR is negative, TR is falling.

What are the units for TR, AR and MR?

TR is in pounds (£). AR is pounds per unit. MR is pounds per extra unit.