Answer to Question #127947 in Microeconomics for Gerald

Question

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit maximizing firm?

Answer 1

Average revenue refers to the total revenue divided by the amount of output. On the other hand, marginal revenue refers to the change in total revenue from the sale of each additional unit of output. Marginal revenue is important because it is used to determine the profit-maximizing level of production while average revenue is used in determining the level of profits.