If price is variable,how are average and marginal revenue related
Answers
Answer:
Marginal revenue (MR) is the additional revenue gained from selling one extra unit in a period of time.
Marginal revenue (MR) = Δ TR/Δ Q
If a firm sells an extra 50 units and sees an increase in revenue of £200. Then the marginal revenue of each extra unit sold is £4
This shows the price (P), quantity (Q), total revenue (TR) average revenue (AR) and marginal revenue (MR)
If the firm cuts the price from £7 to £6, quantity increases to 5. Total revenue increases by two. Therefore the marginal revenue is two.
If the firm cuts price from £3 to £2, total revenue falls by six. Therefore, the marginal revenue is -6.
Relationship between average revenue and marginal revenue.
If the firm is a price taker, its demand curve will be perfectly elastic. In this case, the marginal revenue will be the same as the price and average revenue.
If the price is £5, then the addition to revenue (MR) for selling an extra good, will always be equal to the price £5
Explanation:
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