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DragIT - Revenue curves (1)

The demand curve for product Z is drawn below. Drag the orange dot, (located at the origin) to where you think is the correct price and quantity combination that would return maximum total revenue (TR) (as you do this the corresponding marginal revenue curve will appear).

question

1

Revenue curves

What is the price charged by the firm to generate maximum revenue?

The maximum revenue will be at a price of 14. The marginal revenue curve should be twice the slope of the demand curve. The demand curve crosses the axis at 14 units and so the MR curve should cross the axis at 7 units of output. This is the point where total revenue is at a maximum (any increase in output will mean negative marginal revenue and therefore a reduction in total revenue). At this level of output, the demand curve shows that the firm is charging a price of 14.Check your answer

2

Revenue curves

What will be the value of the total revenue received by the firm if they choose to maximise revenue?

Yes, that's correct. Well done. To maximise revenue the firm will sell 7 units at a price of 14 each. This will give them a total revenue of 98.No, that's not right. To maximise revenue the firm will sell 7 units at a price of 14 each. This will give them a total revenue of 98.Your answer has been saved.Check your answer