Answer to Question #190556 in Economics for Amay

Question

From the give table calculate Elasticity of Price, Total Revenue and Marginal Revenue.

Also, explain the relationship between AR and MR?

Answer 1

The income (revenue) of a firm is called payments received in its favor when selling products. Like many other indicators, economics calculates income in three varieties.

Total income (TR) is the total amount of revenue that a firm receives.

Average revenue (AR) reflects revenue per unit of product sold, or (which is the same) total revenue divided by the number of products sold.

Marginal Income (MR) is the additional income earned from the sale of the last unit sold.

      A direct consequence of the fulfillment of the criterion of perfect competition is that the average income for any volume of output is equal to the same value - the price of the goods and that the marginal income is always at the same level. Thus, there is equality between average income, marginal income, and price (AR = MR = P). Therefore, the demand curve for the products of an individual enterprise in conditions of perfect competition is both the curve of its average and marginal revenue.

      As for the total income (total revenue) of the enterprise, it changes in proportion to the change in output and in the same direction. That is, there is a direct, linear relationship: TR = PQ.