Revenue function

Revenue function

1. MICROECONOMICS ASSIGNMENT ǁ REVENUE FUNCTION Fecilitator : PRO. ABRAHAM BABU Created by : Kogeo

2. Revenue Function R=f(Price, Promotions, ......., Q) R=f(Q), keeping other factors constant. Revenue is the function of number output sold. Therefore, Total revenue=PQ Where, P=Price of the product and Q=Quantity of the product produced

3. Average Revenue Vs Marginal Revenue Average Revenue Average revenue is the revenue per unit sold AR=TR/Q Marginal Revenue Marginal revenue is the change in total revenue when additional unit is sold MR= TR/ Q

4. TR LINE As quantity sold increases TR also increases. The trend is as shown above. The trend can be a straight line or sometimes can be non-linear also (means it can fluctuate also) QUANTITY REVENUE TR O X Y

5. Trend analysis Break even point – it is the part of cost volume profit analysis where total revenue equals total cost. Total profit reaches its maximum where marginal revenue equals marginal cost. In pure competition marginal revenue equals average revenue. For noncompetitive firm marginal revenue is less than average revenue.

6. APPLICATIONS In the movie theatre Ex., If MR > O, the firm can increase its total revenue by increasing P. If MR < 0, the firm can increase its total revenue by decreasing P. In general, If MR < AR, then AR declines. If MR > AR, then AR rises. If MR = AR, then AR remains the same.