Chapter 6 : Revenue | Short Questions [2 Marks each]
1. What is total revenue?
Answer: Total revenue is the total income from selling the products. Total Revenue (TR) = pq [Where, p = selling price per unit, q= unit sold].
2. What is Average revenue (AR)?
Or, Define average revenue of a firm. [2022]
Answer: Average revenue is the revenue per unit of output. So, average revenue can be obtained by dividing total revenue (TR) by the number of units sold (q). Therefore, Average Revenue (AR) = Total Revenue (TR) / Unit sold (q).
3. Are average revenue and price always equal?
Answer: Yes, average revenue (AR) is always equal to price. [ AR = TR/q ;Or, AR = pq/q ;Or, AR = p].
4. Show that average revenue and price of the product of a firm are equal to each other. [2016]
Or, Show that average revenue of any firm is always equal to the market price of the good produced by it. [2018]
Answer:
5. What will be the shape of the TR curve if price is fixed?
Answer: If price is fixed, TR curve will be a straight line passing through the origin.
6. With the help of an example show how total revenue can be obtained from average revenue.
Answer: We know average revenue (AR) = Price (p)
Therefore, Total revenue (TR) = AR x q
Suppose, 2 units sold at a price of Rs. 9 per unit. So, TR = 9 x 2 = 18.
7. What is marginal revenue?
Or, What is meant by a firm’s marginal revenue? [2022]
Answer: When the firm sells one additional unit of output, the extra revenue earned is called marginal revenue. Marginal revenue (MR) = TRn – TRn-1.
8. State the relation between average revenue and marginal revenue.
Answer: The relation between average revenue (AR) and marginal revenue (MR) is –
(i) When AR increases, MR>AR,
(ii) When AR decreases, MR<AR,
(iii) When AR remains the same, MR=AR.
9. If price variable, how are average revenue and marginal revenue related? [2016]
Answer: When price (p) is variable, the relation between average revenue (AR) and marginal revenue (MR) is –
(i) When P increases, MR>AR,
(ii) When P decreases, MR<AR.
[Where P=AR]
10. When average revenue is fixed what will be marginal revenue?
Answer: When average revenue (AR) is fixed, marginal revenue (MR) is equal to average revenue (AR).
11. Show how a firm’s marginal revenue and average revenue are related when the market price remains unchanged. [2019]
Answer: In a perfectly competitive market, where market price (p) remains unchanged, AR=MR and MR curve will coincide with the AR curve and is a horizontal straight line.
12. What will be the shape of the MR curve if the AR curve is convex to the origin?
Answer: If the AR curve is convex to the origin, MR curve will also be convex to the origin.
13. What will be the shape of the MR curve if the AR curve is concave to the origin?
Answer: If the AR curve is concave to the origin, MR curve will also be concave to the origin.
14. If the AR curve is a straight line what will be the shape of the MR curve?
Answer: If the AR curve is a straight line, MR curve will also be a straight line.
15. Show that when AR curve is a straight line the slope of MR curve will be twice the slope of AR curve.
Answer:
16. State the relation involving AR, MR and elasticity of demand.
Answer: The relation among AR, MR and elasticity of demand (e) can be expressed as MR=AR[1-1/|e|].
17. What is the relation between total revenue and marginal revenue?
Answer: The relation between total revenue (TR) and marginal revenue (MR) is –
(i) When TR increases, MR is positive,
(ii) When TR is maximum, MR is zero,
(iii) When TR decreases, MR is negative.
18. What will be the shape of the TR curve when MR is negative?
Answer: When MR is negative, TR curve will be a downward-sloping curve concave to the origin.
19. How can total revenue be obtained from marginal revenue?
Answer: Total revenue (TR) can be obtained by the cumulative sum of marginal revenues (MR).
20. Draw the marginal revenue curve corresponding to the upward-sloping region of the total revenue curve. [2015]
Answer:
21. What will be the value of MR when the absolute value of elasticity of demand is equal to unity?
Answer: When the absolute value of elasticity of demand is equal to unity, MR = 0.
22. Prove that marginal revenue of a firm equals zero if the magnitude of price elasticity of demand is unity. [2018]
Answer:
23. If the absolute value of elasticity of demand is greater than 1, what will be the value of MR?
Answer:
24. Show that MR is negative when the absolute value of elasticity of demand is less than 1.
Answer:
25. What will be the relation between price and marginal revenue, if the magnitude of price elasticity of demand is infinity? [2017, 2023]
Answer:
26. If the TR curve is non-linear how can AR and MR be measured on any point of the TR curve?
Answer: To measure AR and MR at any point on the TR curve, regardless of whether it is linear or non-linear, we can use the following formulas:
Average Revenue (AR) = Total Revenue (TR) / Quantity sold (Q).
Marginal Revenue (MR) = Change in Total Revenue / Change in quantity sold.
27. When is the total revenue curve a straight line? Then what will be AR and MR?
Answer: In a perfectly competitive market, where price (p) is fixed, total revenue (TR) curve is a straight line passing through the origin.
When TR curve is a straight line, AR=MR and MR curve will coincide with the AR curve and is a horizontal straight line.
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