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Revenues and Profits A2 Microeconomics - Tutor2u

Revenues and Profits

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Page 1: Revenues and Profits

Revenues and ProfitsA2 Microeconomics - Tutor2u

Page 2: Revenues and Profits

Revenues

Revenue

Output Sold

Average Revenue = Demand

Page 3: Revenues and Profits

Revenues

Revenue

Output Sold

Average Revenue = Demand

P1

Q1

Page 4: Revenues and Profits

Revenues

Revenue

Output Sold

Average Revenue = Demand

P1

Q1

Total Revenue = Price x Quantity (P1 x Q1)

Page 5: Revenues and Profits

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

Page 6: Revenues and Profits

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

Page 7: Revenues and Profits

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

Page 8: Revenues and Profits

Revenues: Average and Marginal Revenue (AR and MR)

Revenue

Output Sold

Average Revenue

Marginal Revenue

Page 9: Revenues and Profits

Revenues

Revenue

Output Sold

Average Revenue

Marginal Revenue

P1

Q1

Page 10: Revenues and Profits

Revenues

Revenue

Output Sold

Average Revenue

Marginal Revenue

P1

Q1

When MR = zero, total revenue is

maximised

Page 11: Revenues and Profits

Analysis of Revenues, Costs and Profits

MCCosts & Revenue

Output

AC

MR

AR

Page 12: Revenues and Profits

The Profit Maximising Output

MCCosts & Revenue

Output

AC

MR

AR

Q*

Page 13: Revenues and Profits

The Profit Maximising Price

MCCosts & Revenue

Output

AC

MR

AR

Q*

P*

Page 14: Revenues and Profits

The Profit Maximising Price

MCCosts & Revenue

Output

AC

MR

AR

Q*

P*

AC

Page 15: Revenues and Profits

The Profit Maximising Price

MCCosts & Revenue

Output

AC

MR

AR

Q*

P*

ACSNP

Page 16: Revenues and Profits

Analysis Diagram for a Loss-Making Business

MCCosts & Revenue

Output

AC

MRAR

Page 17: Revenues and Profits

Loss-Making Business

MC

Output

AC

MRAR

(MR=MC)

C1

Q1

Costs & Revenue

Page 18: Revenues and Profits

Loss-Making Business

MC

Output

AC

MRAR

(MR=MC)

C1

Q1

P1

Costs & Revenue

Page 19: Revenues and Profits

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

MCCosts & Revenue

Output

AC

MRAR

(MR=MC)

C1

Q1

P1

Page 20: Revenues and Profits

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