Microeconomics

Table of Contents

1. Topic pack - Microeconomics - introduction
2. 1.1 Competitive Markets: Demand and Supply
3. 1.1 Competitive Markets: Demand and Supply - notes
4. 1.1 Competitive markets - questions
5. 1.1 Competitive markets - simulations and activities
6. 1.2 Elasticities
7. 1.2 Elasticities - notes
8. Section 1.2 Elasticities - questions
9. Section 1.2 Elasticities - simulations and activities
10. 1.3 Government intervention
11. 1.3 Government Intervention - notes
12. 1.3 Government intervention - questions
13. 1.3 Government intervention - simulations and activities
14. 1.4 Market failure
15. 1.4 Market failure - notes
16. Section 1.4 Market failure - questions
17. Section 1.4 Market failure - simulations and activities
18. 1.5 Theory of the firm
19. 1.5 Theory of the firm - notes (HL only)
20. Section 1.5 Theory of the firm - questions
21. Section 1.5 Theory of the firm - simulations and activities
    1. DragIT - fixed cost curve
    2. DragIT - variable cost curve
    3. DragIT -cost curves
    4. Step-by-step - Short-run total cost curve
    5. DragIT -revenue curve
    6. DragIT - Revenue curves (1)
    7. DragIT - Revenue curves (2)
    8. PlotIT - Profit maximisation
    9. DragIT - Perfect competition
    10. Step-by-step - perfect competition, short-run supernormal profit
    11. Step-by-step - perfect competition, short-run losses
    12. Step-by-step - perfect competition, firm and industry
    13. DragIT - Monopoly (1)
    14. DragIT - Monopoly (2)
    15. Step-by-step - monopoly
    16. DragIT - Welfare loss under monopoly
    17. Step-by-step - monopolistic competition, short-run
    18. Step-by-step - monopolistic competition, short-run
22. Print View

DragIT - Revenue curves (2)

A change in the firm's output represents a movement along the demand curve (AR) and a movement along the TR curve. A shift in the demand curve would cause the total revenue curve to shift too.

The diagram below shows the current demand curve and marginal revenue curve (AR1and MR1 respectively) for product Z. Demand for this product falls by two units at all prices.

(a) Click on the points where the demand curve crosses the two axes in order to construct the new demand curve.

(b) Now click on the two points where the MR curve crosses the two axes in order to construct the new MR curve.

You may like to check your answer.

1

Revenue curves What is the new price charged by the firm to generate maximum revenue? (For the AR2 and MR2 curves) The maximum revenue will, following the shift of the AR and MR curves, be at a price of £12. The marginal revenue curve should be twice the slope of the demand curve. The demand curve now crosses the axis at 12 units and so the new MR curve should cross the axis at 6 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 £12.

2

Revenue curves What will be the value of the total revenue received by the firm following the shift of the demand curve to AR2 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 £12 each. This will give them a total revenue of £72.No, that's not right. To maximise revenue the firm will sell 6 units at a price of £12 each. This will give them a total revenue of £72.Your answer has been saved.