 ## Revenues - numerical #### Question 1

The following table of data represents a business in operation.

Output/sales 0 1 2 3 4 5 6 7 8
Total revenue 0 100 180 240 280 300 300 280 240
Total costs 20 60 110 170 240 320 410 510 620

Determine:

(i) Average revenue
(ii) Marginal revenue
(iii) Profit
(iv) Marginal cost
(v) Average cost

Plot all the data on one graph and determine the profit maximising output. Confirm that at this output, MC = MR.

#### Question 2

A firm is selling 5 units of its product, and has the following cost and revenue figures.

Output/sales 0 1 2 3 4 5
Total revenue 0 200 350 450 500 500
Total costs 50 100 140 200 250 310

(a) Determine:

(i) the firm's average revenue and price
(ii) the firm's profit level.

b) Is the firm operating below or above its profit maximising output?

c) Determine the new total revenue and profit at the new level of output and sales.

#### Question 3

The following table shows the sales and revenue data for a firm selling its product.

Sales (units) 0 1 2 3 4 5 6 7 8
Price (£) 200 180 160 140 120 100 80 60 40

Determine the firms TR, MR and AR over this range of output. Plot the firm's Revenue curves and show where the firm maximises its sales revenue.

#### Question 4

Distinguish between normal and supernormal profits.

#### Question 5

Who decides what level of profit is normal?

#### Question 6

Explain the difference between profit and money.

#### Question 7

What is a windfall profit?

#### Question 8

What is the difference between the average revenue of a product and its price?

#### Question 9

Why do businesses aim to make a profit?

#### Interactive questions

The following table of data represents a business in operation and is used for the following series of multiple-choice questions

Output/sales 0 1 2 3 4 5 6 7 8
Total revenue 0 50 90 120 140 150 150 140 120
Total costs 10 30 55 85 120 160 205 255 310

1

##### Average revenue

What is the average revenue for the firm at an output of 6 units?

 a) \$34.10 b) \$30 c) \$150 d) \$25 Please select an answerNo. This is the average cost.No, this is nothing to do with 6 units.No. This is the total revenue, not the average.Yes, spot on. Answer is: Average revenue = price, so this is a simple one to start with. TR = 150 Sales = 6 AR = 150/6 = \$25 2

##### Marginal revenue

What is the marginal revenue obtained from selling the 4th unit?

 a) \$60 b) \$35 c) \$20 d) \$140 Please select an answerNo. This is the price for 3 units.No. This is the price for 4 units.Yes, spot on. Answer: Definition - marginal revenue - the extra revenue from selling one more. Look at the calculations and the graph. You will see that the answer is \$20.No. This is the TR when 4 are sold. 3

##### Profit maximising output

The firms profit maximising output is:

 a) 35 b) 3 c) 4 d) 6 Please select an answerNo. That is the maximum profit.No. One unit too few.Yes, spot on. Answer: equation MC = MR or look at the graph. Profit is maximised when the third unit is sold.No. That is the revenue maximising output. 4

##### Marginal revenue

What is the marginal revenue obtained from selling the 7th unit?

 a) 0 b) -\$10 c) -\$20 d) \$50 Please select an answerNo. This is for the 6th.Yes, spot on. Answer: do the sums first and this type of question is easy. Guess, or try and do in your head, and you are in trouble, usually. Answer is a reduction of \$10.No. This is for the 8th.No. This is the marginal cost of the 7th unit. 5

##### Revenue maximisation

The firm will maximise its revenue if it sells:

 a) 4 units b) 5 units c) 6 units d) 7 units Yes, spot on. Answer: equation - revenue maximization when MR = zero. From the chart or the diagram - when it sells the 6th unit.No. Look again at the table, carefully.Your answer has been saved. 