Revenues and Profits

Revenues and ProfitsA2 Microeconomics - Tutor2u

Revenues

Revenue

Output Sold

Average Revenue = Demand

Revenues

Revenue

Output Sold

Average Revenue = Demand

P1

Q1

Revenues

Revenue

Output Sold

Average Revenue = Demand

P1

Q1

Total Revenue = Price x Quantity (P1 x Q1)

Revenues

Revenue

Output Sold

Average Revenue = Demand

P1

Q1

Total Revenue = Price x Quantity (P1 x Q1)

P2

Q2

Cutting the price from P1 to P2 causes total revenue to rise

Revenues

Revenue

Output Sold

Average Revenue = Demand

P1

Q1

Total Revenue = Price x Quantity (P1 x Q1)

P2

Q2

Cutting the price from P1 to P2 causes total revenue to rise

A

B

C

Area A+ B is smaller than A+C

Revenues

Revenue

Output Sold

Average Revenue = Demand

P1

Q1

P2

Q2

If a fall in price causes total revenue to rise – then

marginal revenue will be positive

A

B

C

Revenues: Average and Marginal Revenue (AR and MR)

Revenue

Output Sold

Average Revenue

Marginal Revenue

Revenues

Revenue

Output Sold

Average Revenue

Marginal Revenue

P1

Q1

Revenues

Revenue

Output Sold

Average Revenue

Marginal Revenue

P1

Q1

When MR = zero, total revenue is

maximised

Analysis of Revenues, Costs and Profits

MCCosts & Revenue

Output

AC

MR

AR

The Profit Maximising Output

MCCosts & Revenue

Output

AC

MR

AR

Q*

The Profit Maximising Price

MCCosts & Revenue

Output

AC

MR

AR

Q*

P*

The Profit Maximising Price

MCCosts & Revenue

Output

AC

MR

AR

Q*

P*

AC

The Profit Maximising Price

MCCosts & Revenue

Output

AC

MR

AR

Q*

P*

ACSNP

Analysis Diagram for a Loss-Making Business

MCCosts & Revenue

Output

AC

MRAR

Loss-Making Business

MC

Output

AC

MRAR

(MR=MC)

C1

Q1

Costs & Revenue

Loss-Making Business

MC

Output

AC

MRAR

(MR=MC)

C1

Q1

P1

Costs & Revenue

Loss-Making Business – Price < AC (subnormal profits)

MCCosts & Revenue

Output

AC

MRAR

(MR=MC)

C1

Q1

P1

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