#cfa-level-1 #economics #microeconomics #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit #study-session-4
| Quantity (Q) | Price (P) | Total Revenue (TR) | Average Revenue (AR) | Marginal Revenue (MR) |
|---|
| 0 | 100 | 0 | — | — |
| 1 | 99 | 99 | 99 | 99 |
| 2 | 98 | 196 | 98 | 97 |
| 3 | 97 | 291 | 97 | 95 |
| 4 | 96 | 384 | 96 | 93 |
| 5 | 95 | 475 | 95 | 91 |
| 6 | 94 | 564 | 94 | 89 |
| 7 | 93 | 651 | 93 | 87 |
| 8 | 92 | 736 | 92 | 85 |
| 9 | 91 | 819 | 91 | 83 |
| 10 | 90 | 900 | 90 | 81 |
| |
Describe how total revenue, average revenue, and marginal revenue change as quantity sold increases from 0 to 10 units.
Solution:
Total revenue increases with a greater quantity, but the rate of increase in TR (as measured by marginal revenue) declines as quantity increases. Average revenue and marginal revenue decrease when output increases, with MR falling faster than price and AR. Average revenue is equal to price at each quantity level. Exhibit 8 shows the relationships among the revenue variables presented in Exhibit 7.
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3. ANALYSIS OF REVENUE, COSTS, AND PROFITS the price and AR lines. TR peaks when MR equals zero at point Q 1 .
Exhibit 6. Total Revenue, Average Revenue, and Marginal Revenue under Imperfect Competition
EXAMPLE 2
<span>Calculation and Interpretation of Total, Average, and Marginal Revenue under Imperfect Competition
Given quantity and price data in the first two columns of Exhibit 7, total revenue, average revenue, and marginal revenue can be calculated for a firm that operates under imperfect competition.
Exhibit 7
Quantity (Q) Price (P) Total Revenue (TR) Average Revenue (AR) Marginal Revenue (MR) 0 100 0 — — 1 99 99 99 99 2 98 196 98 97 3 97 291 97 95 4 96 384 96 93 5 95 475 95 91 6 94 564 94 89 7 93 651 93 87 8 92 736 92 85 9 91 819 91 83 10 90 900 90 81
Describe how total revenue, average revenue, and marginal revenue change as quantity sold increases from 0 to 10 units.
Solution:
Total revenue increases with a greater quantity, but the rate of increase in TR (as measured by marginal revenue) declines as quantity increases. Average revenue and marginal revenue decrease when output increases, with MR falling faster than price and AR. Average revenue is equal to price at each quantity level. Exhibit 8 shows the relationships among the revenue variables presented in Exhibit 7.
Exhibit 8. Total Revenue, Average Revenue, and Marginal Revenue for Exhibit 7 Data
3.1.2 Summary
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