Methods of Expressing Economic Relationships.pptx

Methods of Expressing Economic Relationships.pptx

1. Methods of Expressing Economic Relationships

2. Economic relation can be expressed in the form of equations, tables or graph. When the relationship is simple, a table or a graph may be sufficient. when the relationship is complex, however, expressing the relationship in the equational form may be necessary. For example The relationship between the total revenue (TR) of a firm and the quantity of goods and services that the firm sells over a given period of time say, one year is given by TR  

3. TR   By substituting into the equation various hypothetical values for the quantity sold, generate the total revenue schedule of the firm shown in the table. Plotting the total revenue schedule we get the total revenue curve, which is shown in the figure. Note that the total revenue curves rises rise up to Q= 5 and then decline thereafter. Thus we see that the relationship between the total revenue of the firm and its sale volume can be expressed in equational, tabular or graphical form.

4. TC, AC , MC AC = TC / Q MC= ∆ TC/ ∆ Q

5. Optimal level The point at the marginal revenue of the firm is equal to the marginal cost then the firm is at the optimal level. Position maintenance: Some firm wants to maintain its position in the market and cover their average cost, not to do large profit.