1. A2 Microeconomics - Tutor2u
Revenues and Profits

2. Revenues
Revenue
Average
Revenue =
Demand
Output
Sold

3. Revenues
Revenue
P1
Average
Revenue =
Demand
Q1
Output
Sold

4. Revenues
Revenue
Total Revenue = Price
x Quantity (P1 x Q1)
P1
Average
Revenue =
Demand
Q1
Output
Sold

5. Revenues
Revenue
Total Revenue = Price
x Quantity (P1 x Q1)
P1
Cutting the price
from P1 to P2 causes
total revenue to rise
P2
Average
Revenue =
Demand
Q1
Q2
Output
Sold

6. Revenues
Revenue
Total Revenue = Price
x Quantity (P1 x Q1)
P1
Cutting the price
from P1 to P2 causes
total revenue to rise
B
P2
A
C
Q1
Area A+ B is
smaller than
A+C
Average
Revenue =
Demand
Q2
Output
Sold

7. Revenues
Revenue
If a fall in price causes total
revenue to rise – then
marginal revenue will be
positive
P1
B
P2
A
C
Q1
Average
Revenue =
Demand
Q2
Output
Sold

8. Revenues: Average and Marginal Revenue (AR and MR)
Revenue
Average
Revenue
Marginal
Revenue
Output
Sold

9. Revenues
Revenue
P1
Average
Revenue
Q1
Marginal
Revenue
Output
Sold

10. Revenues
Revenue
When MR = zero,
total revenue is
maximised
P1
Average
Revenue
Q1
Marginal
Revenue
Output
Sold

11. Analysis of Revenues, Costs and Profits
Costs &
Revenue
MC
AC
AR
MR
Output

12. The Profit Maximising Output
Costs &
Revenue
MC
AC
AR
MR
Q*
Output

13. The Profit Maximising Price
Costs &
Revenue
MC
AC
P*
AR
MR
Q*
Output

14. The Profit Maximising Price
Costs &
Revenue
MC
AC
P*
AR
AC
MR
Q*
Output

15. The Profit Maximising Price
Costs &
Revenue
MC
AC
P*
SNP
AR
AC
MR
Q*
Output

16. Analysis Diagram for a Loss-Making Business
Costs &
Revenue
MC
MR
AR
Output
AC

17. Loss-Making Business
Costs &
Revenue
MC
C1
MR
(MR=MC)
Q1
AR
Output
AC

18. Loss-Making Business
Costs &
Revenue
MC
C1
P1
MR
(MR=MC)
Q1
AR
Output
AC

19. Loss-Making Business – Price < AC (subnormal profits)
Costs &
Revenue
MC
C1
P1
MR
(MR=MC)
Q1
AR
Output
AC

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