The difference between marginal, average and total revenue
A firm earns revenue by selling its output. Total revenue is all the money it receives. Average revenue is the amount earned per unit sold. Marginal revenue is the extra money earned from selling one more unit.
Formula
TR = P × Q; AR = TR ÷ Q; MR = ΔTR ÷ ΔQ
Real World
When Spotify cut its Premium price from £9.99 to £7.99 in a promotional month, total revenue initially fell even though more subscribers signed up — illustrating how MR can be below AR when price is cut to sell more.
Exam Focus
Remember AR = price for any firm; under perfect competition MR = AR = P, but under imperfect competition MR < AR — state this explicitly to access top-band marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
How well did you know this?