Revenue

Revenue

Price-taking firm
(a) Average and
marginal revenue
 Deriving a firm’s AR and MR: price-taking firm
Price (£)

AR, MR (£)
S

Pe

D
O O
Q (millions) Q (hundreds)

(a) The market (b) The firm

 Deriving a firm’s AR and MR: price-taking firm
Price (£)

AR, MR (£)
S

D = AR
Pe
= MR

D
O O
Q (millions) Q (hundreds)

(a) The market (b) The firm

 Revenue

Price-taking firm
(b) Total revenue
 Total revenue for a price-taking firm
6000 Quantity Price = AR TR
(units) = MR (£) (£)

0 5 0
5000
200 5 1000
400 5 2000
600 5 3000
4000
TR (£)

800 5 4000
1000 5 5000
1200 5 6000
3000

2000

1000

0
0 200 400 600 800 1000 1200
Quantity
 Total revenue for a price-taking firm
6000 Quantity Price = AR TR
(units) = MR (£) (£)

0 5 0
5000
200 5 1000
400 5 2000
600 5 3000
4000
TR (£)

800 5 4000
1000 5 5000
1200 5 6000
3000

2000

1000

0
0 200 400 600 800 1000 1200
Quantity
 Total revenue for a price-taking firm
6000 Quantity Price = AR TR TR
(units) = MR (£) (£)

0 5 0
5000
200 5 1000
400 5 2000
600 5 3000
4000
TR (£)

800 5 4000
1000 5 5000
1200 5 6000
3000

2000

1000

0
0 200 400 600 800 1000 1200
Quantity
 Total revenue for a price-taking firm
6000
TR

5000

4000
TR (£)

3000

2000

1000

0
0 200 400 600 800 1000 1200
Quantity
 Revenue

Firm facing a downward-

sloping demand curve
(a) Total revenue
AR and MR curves for a firm facing a downward-sloping D curve
8 Q P
(units) =AR
1 (£)
8
2 7
6 6
3
4 5
5 4
AR, MR (£)

4 6 3
7 2

2 AR

0
1 2 3 4 5 6 7 Quantity

-2

-4
AR and MR curves for a firm facing a downward-sloping D curve
8 Q P TR MR
(units) =AR (£) (£)
1 (£)
8 8
6
2 7 14
6 6 4
3 18
2
4 5 20
0
5 4 20
-2
AR, MR (£)

4 6 3 18
-4
7 2 14

2 AR

0
1 2 3 4 5 6 7 Quantity

-2

-4
AR and MR curves for a firm facing a downward-sloping D curve
8 Q P TR MR
(units) =AR (£) (£)
1 (£)
8 8
6
2 7 14
6 6 4
3 18
2
4 5 20
0
5 4 20
-2
AR, MR (£)

4 6 3 18
-4
7 2 14

2 AR

0
1 2 3 4 5 6 7 Quantity

-2

-4 MR
 Revenue

Firm facing a downward-

sloping demand curve
(b) Average and
marginal revenue
 TR curve for a firm facing a downward-sloping D curve

20

16

Quantity P = AR TR
12
(units) (£) (£)
TR (£)

1 8 8
8 2 7 14
3 6 18
4 5 20
4 5 4 20
6 3 18
7 2 14
0
0 1 2 3 4 5 6 7
Quantity
TR curve for a firm facing a downward-sloping D curve

20

16

Quantity P = AR TR TR
12
(units) (£) (£)
TR (£)

1 8 8
8 2 7 14
3 6 18
4 5 20
4 5 4 20
6 3 18
7 2 14
0
0 1 2 3 4 5 6 7
Quantity
 Revenue

Revenue and
price elasticity of
demand
AR and MR curves for a firm facing a downward-sloping D curve
8
Elastic
6
Elasticity = -1
AR, MR (£)

4 Inelastic

2 AR

0
1 2 3 4 5 6 7 Quantity

-2

-4 MR
TR curve for a firm facing a downward-sloping D curve
Elasticity = -1
20

In
tic

el
as

as
El

tic
16

TR
12
TR (£)

0
0 1 2 3 4 5 6 7
Quantity