Concept of Revenue

1 Marks Questions

1. Define Marginal Revenue. (All India 2013, 2009,2008,2007,2006; Delhi 2006)

Ans. Marginal Revenue (MR) is the change in total revenue on account of the sale of an additional unit of output.

Symbolically,

<math>MR = \Delta TR \div \Delta Q</math> or <math>TR_n - TR_{n-1}</math> or <math>TR_{n+1} - TR_n</math>

Where, MR = Marginal Revenue

<math>\Delta TR = Change in Total Revenue</math>

<math>\Delta Q</math> = Change in quantity

1. What is the behaviour of average revenue in the market, in which a firm can

sell more only by lowering the price? (Hots; Delhi 2012)

Ans. Average Revenue falls in the market, in which a firm can sell more only by lowering the price, i.e. Imperfect competition

1. What is the behaviour of Marginal Revenue in the market, in which a firm can

sell any quantity of the output it produces at a given price?(hots; All India 2012)

Ans. In a perfectly competitive market, firm's Marginal Revenue is just equal to the market price and it will be a horizontal line parallel to X-axis.

4. Define revenue.(Delhi 2008)

or

Give meaning of revenue in microeconomics.(Delhi 2007; All India 2006)

Ans. Revenue refers to money receipts of the producer from the sale of his output.

3 Marks Questions

1. Draw Average Revenue and Marginal Revenue curves in asingle diagram of a

firm, which can sell more units of a good only by lowering the price of that good. Explain. (Delhi 2011)

Ans. Under imperfect competition, firms faces a downward sloping AR and MR curves, as under this form of market, firms can sell higher output only at lower price, resulting in

downward slope of AR and MR, curves wherein MR lies below AR because additional revenue of every addition unit sold is less than the price of output.

Revenue (₹ MR AR - X 0 Output (units) Firm's revenue curve under monopoly

6. Draw a single diagram of the Average Revenue and Marginal Revenue curves of a firm, which can sell any quantity of the good at a given price Explain(All India 2011)

Ans. Under perfect competition, a firm is a price taker. It can not influence/change the market price. It can sell any number of units of output at the prevailing price. If a firm tries to sell at a price higher than market price, it will lose all its customers. Firm's price line or revenue curve is a straight horizontal line. AR and MR Curves coincide with each other Y 6 Revenue <math>P = AR = MR = d</math>

1. χ Output (units)

Firm's revenue curve

1. Explain the relation between Marginal Revenue and Average Revenge. (Delhi 2010C)

Ans. Relationship between Marginal Revenue (MR) and Average Revenue (AR) is:

(i)When AR curve rises, MR > AR

(ii)When AR curve reaches its maximum and constant, MR = AR.

(iii)When AR curve falls, MR < AR.